TrueRate Market Report - December 2022

TrueRate's market report: a one-page summary of everything you need to know on national and commercial real estate market trends.

Announcements & Updates

The Federal Reserve delivered a 50-basispoint rate hike today in its continued fight against inflation. This broke a string of four straight 75-basis point increases and shifted the targeted Federal Funds Rate range up to 4.25%-4.50%. According to SEP numbers, the projected terminal rate is now 5.1%. Chairman Jerome Powell indicated that moderate restrictive policy will keep rates higher throughout the next year and that reductions will not take place until 2024. More traditional 25-basis point increases are expected to occur in upcoming months.

The stock market, which responded optimistically to yesterday’s softer than expected inflation report, slipped as investors digest the Federal Reserve's latest decision. Major indexes hit their lows of the session; the Dow Jones Industrial Average fell 0.84%, while the S&P 500 and Nasdaq Composite dropped 1.00% and 1.17%, respectively.

Trends in Multifamily Housing

The United States multifamily market saw an unprecedented surge in rent growth topping out at a 13.5% year over year increase to end 2021; This trend had remained steady through 2022 as inflation, demographic shifts, and supply shortages created a perfect storm for rent growth. Upward momentum of rents has since halted as November 2022 marked the third consecutive month of rental declines. Cumulative cuts over the last three months are the largest for any three-month period since 2010 (not factoring in the2020 lockdown period), with the contraction of leasing traffic acting as the main culprit - Net new demand for multifamily housing is weak despite strong growth in jobs and wages, a correlation that the US has never seen.

This slowdown is felt among markets ofall types though it is highlighted in tech focused areas on the West Coast -San Jose and Bay Area neighbors, San Francisco and Oakland, recorded rentdecreases greater than 1% as tech companies underwent significant layoffs. Other key markets with >1% rentreductions in November included Raleigh/Durham, Austin, Charlotte, Seattle,Phoenix, Tampa, Las Vegas and Denver.

Seasonality has historically influenced multifamily markets. Rent growth typically dampens in December and is followed by flat growth in January. The current trajectory of weak new-lease demand enhances this trend. The 2023rental market will likely favor the middle- and upper-income earners as a significant Class A supply will hit the market and will encourage more turnover among in-place residents; Official leasing season begins in March and April and these months will act as the new barometer for the strength of the leasing market.


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