Rates Jump to New 2-Year Highs After Fed Announcement

 

Fed policy is critically important to interest rates and January has marked a shift in the Fed policy outlook.  In not so many words, the Fed sees itself hiking rates and decreasing its bond purchased more quickly than previously expected.  It has conveyed this in various ways since the beginning of the month.  Today's policy announcement and press conference were just the latest iterations.  They were also arguably the least equivocal.

Despite the relatively clear communication from the Fed in recent weeks, financial markets were increasingly laboring under the misapprehension that the Fed would take a softer tone in light of recent market drama.  In other words, stocks have dropped significantly and rates spiked to 2-year highs as the Fed began its communication push this month, so perhaps they would "communicate" in a more market-friendly way today.

While it's not uncommon for some market participants to hope for such things, it was never very likely in this case (one of the reasons I reiterated that the Fed is not tasked with babysitting the market in yesterday's commentary).  True to form, the Fed paid zero attention to recent market movement.  In their view, rates are still low, and asset prices are elevated.  If anything, they feel they need to hustle when it comes to hiking rates and decreasing bond purchases.

Bottom line, the market was a bit flat-footed heading into today's Fed events.  When the Fed stuck to the tightening script rather religiously, rates were forced to snap back to the reality they'd previously done a good job of understanding.  Case in point, Treasury yields and mortgage rates are both very close to levels seen last Monday.  Mortgage rates just happen to have edged slightly higher, thus earning the dubious distinction of "highest in 2 years."

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Source: Rates Jump to New 2-Year Highs After Fed Announcement

https://www.creconsult.net/market-trends/rates-jump-to-new-2-year-highs-after-fed-announcement/

Apartment Residents' Preferences Driven by Remote Work

 

NMHC/Grace Hill renter preference survey sheds light on how the pandemic has affected resident behavior.

Teleworking factored significantly in renter preferences, according to a survey released last week by NMHC/Grace Hill—a trend that is expected to carry into 2022 and beyond. The desire for single-family rentals also made the list.

The NMHC/Grace Hill 2022 Renter Preferences Survey Report featured input from 221,000 renters living in 4,564 communities nationwide, with data available in 79 markets.

One-quarter of all moves tracked were specific to changes in teleworking.

“Whether digital nomads looking to join a flexible membership club, pet amenities dog owners won’t rent without or the insatiable appetite for more packages, the NMHC/Grace Hill Renter Preferences Survey reveals all that has changed since 2019,” Sarah Yaussi, Vice President, Business Strategy, NMHC, said in prepared remarks. “And what we’ve seen overall are renters reporting a great desire for more space, better amenities, and in-home creature comforts.”

The survey was a topic of conversation last week during NMHC’s Annual Meeting in Orlando.

Home is Now Sanctuary

Now more than ever, home is proving to be a sanctuary, and renters have a great desire—and are willing to pay a premium in additional monthly rent—for certain amenities. Reported features with the highest share of renter interest, and their associated additional average monthly premiums, include:

• Washer/dryer in-unit (92% of renters interested / $54.73 monthly premium);
• Air conditioning (91% / $54.73);
• Soundproof walls (90% / $46.21);
• High-speed Internet access (89%; $47.93), and
• Walk-in closet (88%; $43.46).

Give Them Their Space

All the lockdowns seemingly led to a strong desire for additional space; 28% of renters who said they intend to move to a different rental community when their lease expires cited “additional living space” as a reason, up from just 19% two years ago. This was the third-most-common reason for wanting to move after “seeking lower rent” (49% of renters) and “seeking better community amenities” (29%).

When asked which types of rental homes were considered during their last home search, traditional apartment homes garnered a majority of responses (57%). However, townhomes and single-family rentals were also in the mix at 23% and 19% of responses, respectively, supporting the desire for more space and validating industry and investor eyes on these property types.

Special Delivery

While many kept venturing out to a minimum, the need for goods to be delivered increased. The share of renters who received two or fewer packages per month dropped from 45% in 2019 to just 24% this round. Conversely, the share who received three or more packages per month increased from 55% to 76% over the two-year period. And the share of renters who received perishable items several times a month or more nearly doubled from 9% in 2019 to 17%.

Market-Level Nuances

“It’s important to note that, beyond national trends, there are several market-level nuances affecting renter preferences,” said Kendall Pretzer, CEO of Grace Hill. “National data paints an overall picture for the industry, but it is vital for operators to keep a finger on the pulse of each individual market in their portfolios. Trends vary by region, by state, and by municipality, and may stray significantly from national averages. A program that regularly polls prospects and solicits resident feedback is essential to successfully meeting renter preferences and expectations.”

For example:

• A gear wall, for home storage and organization, is a sought-after home feature in Honolulu, where 45% of renters say they are interested or won’t rent without one.
• Rental dwellers in Savannah, Ga., show the least interest (11%) in a gear wall but show more interest than any other market in a makerspace/DIY room (39%).
• There is interest in hot tubs in Boulder, Colo. (70%) than in Philadelphia (41%).
• Covered parking is more important in Minneapolis (80%) than in Gainesville, Fla. (47%)

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Source: Apartment Residents’ Preferences Driven by Remote Work

https://www.creconsult.net/market-trends/apartment-residents-preferences-driven-by-remote-work/

Drilling Down Into the Hot Apartment Submarkets

Areas near Phoenix and Dallas are poised to perform well in 2022.

There are hot apartment markets such as Phoenix and Dallas projected to do well this year, but understanding the fundamentals in those areas’ key submarkets can prove even more valuable to investors and developers.

Much has been written about the scorching hot Phoenix market, for example. Greg Willett, Vice President of Marcus & Millichap’s Institutional Property Advisors (IPA) multifamily research, points more specifically to its nearby cities such as Tempe, Chandler, and Gilbert on the west side of metro Phoenix.

Development is the heaviest downtown and in West Valley suburbs such as Glendale, Ariz., according to Marcus & Millichap’s report. Net absorption surpasses 19,000 units, the highest annual total since at least 2000. Still, the record-setting wave of supply results in a slight vacancy increase to 2.8 percent.

Rent growth will settle from last year’s 21.9 percent gain but remain strong. The mean will jump to $1,630 per month in 2022, aligning with the 2016-2020 annual average growth rate.

More buyers pursue Class B and C assets Downtown and in North Phoenix. These may better align with the budgets of some renters in the area amid a wave of new modern facilities.

A Closer Look at Dallas

Likewise in the Dallas metro, Willett said nearby locations such as Frisco, Allen, and McKinney on the north side of metro Dallas were ones to watch.

Amid rapid population growth and household formation, assets in Dallas-Fort Worth are attractive to investors throughout the world, according to the report.

“The sizable field of buyers eager to acquire properties in the Metroplex is pushing up sale prices and compressing yields. From 2013 to 2020 the mean sale price increased by an average of more than 10 percent per year, a trajectory sustained in 2021.

“The average cap rate also dipped below 5 percent for the first time on record last year. Many buyers are following household formation trends to North Dallas suburbs, with deal velocity ramping up in locations beyond Interstate 635 like Carrollton, Frisco, and Garland.

“Areas that will receive the most new supply include Frisco, South Arlington-Mansfield, and Intown Dallas. Following a 190-basis-point drop in 2021, downward vacancy movement continues this year as net absorption exceeds new supply. The rate will fall to a two-plus decade low of 3.6 percent. It will be difficult to mirror the 12 percent gain from last year, but rent growth in 2022 will be the second-fastest in the past six years.”

The mean effective rate will reach $1,395 per month, Marcus & Millichap forecasted. Competition for assets in North Dallas suburbs, Downtown, and in the Mid-Cities will lead buyers to search farther out. Denton, McKinney, and Waxahachie may offer compelling prospects.

Willett added that key suburban job centers across the entire state of Florida continue to perform well.

Looking Elsewhere

“Performances lagged to some degree in most urban core settings across the country, but even the worst-performing neighborhoods generally made progress viewed relative to 2020 results,” Willett said. “By the end of 2021, the only places where rents had not fully recovered to pre-pandemic levels were in the San Francisco Bay area and select neighborhoods in metro New York.”

Marcus & Millichap this week released its full 2022 apartment market forecast, citing Orlando and Las Vegas as its best bets overall for 2022.

 

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Source: Drilling Down Into the Hot Apartment Submarkets

https://www.creconsult.net/market-trends/drilling-down-into-the-hot-apartment-submarkets/

Goldman Sachs Says Rent Increases Should Slow Down This Year

 

• The rent-price surge seen through 2021 likely peaked in the fourth quarter, Goldman Sachs said Tuesday.
• Shelter inflation gauges suggest price growth will start to slow faster by mid-2022, the bank added.
• The bank sees rent growth peaking at 5.1% in 2021 and slowing to 4.2% by the end of 2024.

Renters have been on a rollercoaster ride throughout the pandemic. That choppiness is cooling down soon, according to Goldman Sachs.

City rents have been on a tear. Prices were up 11.5% year-over-year in November, according to CoreLogic's Single-Family Rent Index, much higher than the 3.8% annual growth rate in November 2020 and marking the fastest inflation in at least 16 years. Popular pandemic moving destinations like Austin, Las Vegas, and Miami led the charge in 2021, and rents in major metro areas like New York City and San Francisco more recently roared back as people prepared to return to offices.

The surge raised concerns that the affordability crisis in the housing market could bleed into rentals. Yet early signs suggest the US is past peak rent inflation, and apartment prices should start to stabilize this year, Goldman analysts led by Jan Hatzius said in a Tuesday note.

Shelter inflation accelerated to an annualized rate of 5.1% in the fourth quarter, according to the Census Bureau. Trends in other inflation measures, however, show rent growth starting to ease through the end of last year. The Consumer Price Index's rent and owners-equivalent rent measures both decelerated in December. The gauges track prices of new and continuing leases, and it takes longer for the latter to follow price increases in the former. By modeling when the new leases saw the biggest price hikes, the economists estimate that the rent-price surge was the strongest in the fourth quarter and will fade moving forward.

The cooldown won't be quick. Shelter inflation will linger at a year-over-year pace of about 5% through the third quarter before dropping to 4.8% at the end of 2022, Goldman said. Price growth will continue to ease to 4.5% at the end of 2023 and to 4.2% at the end of the following year, the team added. The forecast offers new hope that the country's broader inflation problem will also improve. Rent growth is a "sticky" form of inflation, meaning prices are not likely to decline after soaring higher.

Persistently strong rent inflation is potentially a bigger problem for the economy than more temporary price increases for things like gasoline or food, as it could spark a new inflation crisis and the need for large-scale intervention. Goldman's outlook, then, assuages some concerns that the rent boom of 2021 would keep inflation stuck at its four-decade highs.

Still, risks exist on both sides of the bank's forecast. Rent inflation could accelerate again in 2022 if less of the bump from new-lease rents has made its way to renewals than expected, the team said. That would prolong the cycle and likely drive shelter inflation higher. Conversely, rent growth could drop even faster if most of the new-lease boost has already hit renewal inflation, the team said. Weaker underlying shelter-inflation trends could also drag on rent growth, they added.

For now, rent is still growing at its fastest rate since the financial crisis, according to BLS data. Even the weaker inflation rates forecasted by Goldman sit above the pre-pandemic trend, but after a year of skyrocketing shelter prices, the bank's projected peak offers some respite for those struggling to keep up.

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Source: Goldman Sachs Says Rent Increases Should Slow Down This Year

https://www.creconsult.net/market-trends/goldman-sachs-says-rent-increases-should-slow-down-this-year/

State of Commercial Real Estate 2022

 

On Tuesday, Feb. 15, eXp Commercial hosted a free virtual seminar in the eXp Commercial Campus metaverse featuring founder and president of Red Shoe Economics, KC Conway as the keynote speaker. The 60-minute "State of the Commercial Real Estate Industry" seminar is open to all eXp Commercial agents and other interested parties. 

With more than three decades of experience as an economist, Conway will provide industry research, data, analytics, and economic insight on the complex and changing commercial real estate market.

 

 

 

About KC Conway:

Economist and Futurist Kiernan “KC” Conway, CCIM, CRE, MAI is the mind trust behind Red Shoe Economics, LLC, an independent economic forecasting and consulting firm furthering KC’s mission as The Red Shoe Economist by providing organic research initiatives, reporting, and insights on the impact of Economics within the commercial real estate industry.  A proud graduate of Emory University with more than 30 years experience as a lender, credit officer, appraiser, instructor, and economist; KC is recognized for accurately forecasting real estate trends and ever-changing influences on markets all across the United States. With credentials from the CCIM Institute, Counselors of Real Estate, and the Appraisal Institute, KC currently serves as Chief Economist of the CCIM Institute and as an Independent Director for Monmouth REIT MNR. A gifted and prolific speaker KC has made more than 850 presentations to industry, regulatory and academic organizations in the last decade, and has been published in many national and regional newspapers and journals with frequent contributions to radio and television programming.

 

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https://www.creconsult.net/market-trends/state-of-commercial-real-estate-2022/

Not just a national surge Chicago area multifamily market soaring too

Last year was a particularly unique year for the real estate industry as it pertains to the residential trends and migration patterns left in the pandemic’s wake. With a majority of the corporate real estate sector opting to implement work-from-home or work-from-anywhere models in order to retain staff and reduce overhead, there was a significant surge throughout the country in workers relocating to more suburban areas.

This occurred for a variety of reasons, such as individuals seizing the opportunity to live farther away from their offices and others realizing the potential financial savings and change of scenery that suburban living can provide. From a health and wellness perspective, moving to areas with smaller populations appeared as a practical solution in terms of lowering the risk of virus transmissions as well as a way to reduce the sources of stress that often accompany urban life, such as noise pollution and smaller living spaces.

With the worst of the pandemic appearing to be behind us, these migration trends are beginning to shift once again. However, instead of an outright reversal of the exodus seen in 2020, the population has found a middle ground. Urban areas are seeing a surge in new residents while the suburbs continue to thrive. New York City, as an example, is seeing almost twice as many new residents compared to 2019 figures while Chicago’s urban market continues to be outpaced by the suburbs. The city of Chicago itself, however, continues to retain its title as the third most populous city in the United States despite 2020’s notable outbound migration.

Chicago in focus

The unique migration patterns in and out of the Chicago metropolitan area, have resulted in an incredibly diverse multifamily market landscape. The demand in this area mirrors the broader multifamily trends being seen throughout the entire country, with some residents continuing to demonstrate a heightened interest in the suburbs while others begin returning to the inner city.

This dichotomy is likely attributable in part to the vaccine and booster shots now being more widespread and available as well as businesses beginning to bring workers back into the office. Certain companies opting to continue using their WFA models or adopt hybrid strategies, however, present one possible explanation as to why the post-pandemic world is not simply snapping back to its 2019 landscape.

My firm Pensam has been consistently exercising its team’s market insights to meet this spectrum of demand. Over the past year, the firm has acquired four multifamily properties in Chicago and its surrounding suburbs as well as preferred equities and other transactions throughout Illinois and the rest of the country. This focus on the Chicago MSA is not by chance, as the area’s multifamily market activity over the past year has shown a clear interest in both urban areas and their surrounding suburbs. This interest has paved the way for firms like Pensam to execute deals inside of a particularly diverse pool.

Transactions across the spectrum

1900 at Canterfield, a 260-unit stabilized multifamily community in West Dundee, Illinois, acquired by Pensam in the summer of 2021, provides an example of the types of suburban properties that saw a surge in interest following the pandemic. 1900 at Canterfield contains 18 buildings across 23.6 acres, providing the suburban atmosphere, low density, and spacious design that city emigrants are seeking, but is located less than a mile from I-90, granting easy access to the Schaumburg job market.

The building’s amenities also include a clubhouse, outdoor lounge area, and swimming pool–amenities that today’s suburban residents are expecting to accompany the increased space available.

More recently, Pensam also acquired Lakeside Apartments in Wheaton and Aspen Place in Aurora, both Chicago suburbs. These two properties, containing 204 and 416 units respectively, demonstrate not only a high level of interest in the Chicago MSA but an interest that is continuing to grow. Combined with the firm’s latest acquisition, the 336-unit Butterfield Oaks in Aurora, Illinois, evidence points to this momentum carrying forward.

A promising 2022

Pensam’s strong focus on Chicago and its surrounding suburbs indicates that the firm is placing great confidence in the real estate industry’s continuing rebound from the pandemic, poising itself to keep both the urban and suburban multifamily markets in focus throughout 2022.

Against the backdrop of Pensam’s performance in the national multifamily market throughout last year, this is further evidence that the worst of the pandemic’s effects on the U.S. multifamily market are likely behind us. Going forward, all signs point to this sector continuing to improve in 2022 and lead the country to pre-pandemic levels of activity and beyond.

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Source: Not just a national surge Chicago area multifamily market soaring too

https://www.creconsult.net/market-trends/not-just-a-national-surge-chicago-area-multifamily-market-soaring-too/

The spotlight may be on Chicago’s single-family market but multifamily sector is also hot

 

While investors and homebuyers’ focus has been on Chicago’s soaring single-family market, multifamily properties in and around the city are also hot.

The trend is driven by migration patterns in Chicago as workers reassess their situations now that the availability of vaccines and booster shots makes living with Covid more manageable, according to an analysis by Hen Shoval, principal and director of Investment at Pensam Capital, a Miami-based real estate investment firm, in REjournals.

“The demand in this area mirrors the broader multifamily trends being seen throughout the entire country, with some residents continuing to demonstrate a heightened interest in the suburbs while others begin returning to the inner city,” said Shoval.

Chicago’s housing market is seeing record activity. The supply of suburban homes earlier in February fell below one month and realtors say sellers can expect $20,000 over asking price. The multifamily sector is setting records as well. A suburban multifamily complex in January sold for $73.5 million, a DuPage County record. 

Pensam is one such out-of-state buyer. It bought four multifamily properties around Chicago last year and expects activity to continue. Pensam bought a 260-unit stabilized multifamily community in West Dundee, Ill. last summer and more recently bought two properties in Aurora, Ill.

“Against the backdrop of Pensam’s performance in the national multifamily market throughout last year, this is further evidence that the worst of the pandemic’s effects on the U.S. multifamily market are likely behind us,” Shoval said. “Going forward, all signs point to this sector continuing to improve in 2022 and lead the country to pre-pandemic levels of activity and beyond.”

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Source: The spotlight may be on Chicago’s single-family market but multifamily sector is also hot

https://www.creconsult.net/market-trends/the-spotlight-may-be-on-chicagos-single-family-market-but-multifamily-sector-is-also-hot/