Yardi Matrix recently hosted a webinar showcasing their multi-family outlook for fall 2021. The presentation included both a general outlook on the economy and a discussion of the future direction of the multi-family housing market. The presenters were Jeff Adler, vice president of Yardi Matrix and Jack Kern, director of research and publications.
The economy is rebounding
Yardi Matrix presented data indicating that the economy is recovering. A key factor in its performance has been the enormous monetary stimulus that has been injected into the economy over the past 18 months. This has led to an increase in personal savings and has contributed to a surge in consumer net worth.
Inflation was one of the main topics of discussion in the presentation. Since the surge in inflation began last May, the Federal Reserve (Fed) has said it expects it to be transitory. Yardi Matrix is âânot so sure.
Adler pointed out that before the pandemic, inflation in the price of services was offset by deflation in the price of goods. This is no longer the case, the prices of goods also increasing. In addition, commodity prices are rising rapidly and rent increases are setting records. Due to the way rents are factored into inflation measures *, the full impact of these rent increases is not yet reflected in the inflation statistics, but their effect will continue to be felt for a while. many months.
Supply chain disruptions, high levels of consumer money chasing the limited goods available, and labor shortages all drive up prices. The labor shortage is exacerbated by a 1.5 point drop in the participation rate since the start of the pandemic. People may stay out of the workforce for fear of COVID, because they are needed to care for others, or because their vast economies allow them to be very selective about the many available opportunities they choose to pursue. grab.
Yardi Matrix does not think inflation is transitory and they believe that there are conditions that could allow the formation of a wage-price spiral. However, they don’t expect the current inflation surge to turn into hyperinflation. The most likely outcome is that higher inflation will lead to higher interest rates which would lead to a recession. This recession, if it does occur, is probably 3 years away.
Yardi Matrix forecasts real GDP growth of 4.5% in 2022, up from 5.7% in 2021. They forecast that inflation as measured by the core PCE deflator will drop from 4.5% in 2021 to 4.0 % in 2022. They expect the fed funds rate to remain unchanged at 0.25% until the end of next year, but expect bond yields to rise 1.75% at 2.5%.
People on the move
One factor contributing to the increase in asking rents is the migration of people to lower cost areas from higher cost areas. They bring their high wages with them and use those wages to raise rents in formerly low rent areas.
This migration is made possible by the trend of work from home / work from anywhere, which has reduced the need for employees to live close to their place of work. This is a trend that is still developing, but its unfolding will have a significant impact on the demand for housing in the future.
Office workers who will be working from home full time will have the greatest influence on housing, as they are the ones who have the freedom to relocate anywhere. The likelihood of people falling into this category depends on the type of work they do. For example, privacy considerations may force people working in financial or legal services to work from the office. On the other hand, some tech workers may be able to work remotely full time. Overall, Yardi Matrix estimates that 20-25% of office workers may be able to work remotely full-time.
Yardi Matrix believes that it is the âgatewayâ cities that pose the greatest risk of losing tenants due to the shift to full-time telecommuting. In Los Angeles and San Francisco, enough tenants could work remotely full-time to account for over 40% of available multi-family rentals. If a significant portion of these people decided to move, it would have a major impact on local rental markets.
Demographics is fate
Between 2020 and 2030, the shape of the distribution of the US population will change dramatically. There will be an additional 3.5 million people in the primary tenant age range of 20 to 44. In addition, people wait until they are older to get married and have children, which increases the age at which they seek to move out of an apartment and move into a house.
By 2030, there will also be 10.4 million more people in the 65 to 79 age group. This age group has not traditionally been that of a high proportion of renters, but improving the health of people in this age group may make them more interested in renting than they were. in the past.
In the decade following the housing crash, the number of new housing units put on the market was consistently lower than the number of new households being formed. Closing this deficit and meeting the needs of new households resulting from the population growth described above is expected to maintain strong housing demand over the next decade.
The multi-family business
After a marked slowdown in 2020, sales of multi-family properties rebounded in 2021, with each quarter’s sales volume exceeding that of the same quarter in 2019. However, most of that sales growth came from technology hub markets, with catwalk sales. the markets remain stable.
Over the past year, occupancy and rental growth has picked up in both the urban core and suburban areas. However, the growth of rents in suburban areas has exceeded that of urban cores in most of the metropolitan areas that Yardi Matrix has focused on in this report. The relationship between rent growth and occupancy for metropolitan areas discussed in this presentation is illustrated in the report graph which is reproduced below.
The full presentation contains much more information than could be summed up here. This includes analyzing emerging technology hubs and comparing their performance with that of gateway markets. It deals with single-family rentals and also provides an introduction to the work Yardi Matrix has done on risk in multi-family investments. The presentation is available here.
* A consumer is only affected by a rent increase when he renews his lease. Therefore, the full impact of rent increases is only evident in inflation data after one year, so all tenants have renewed their leases at the highest rates.