This is a narration of our weekly Rent and Operating Trends Report.
The first half of 2023 has been marked by economic volatility, major regional bank failures, continued monetary tightening and ample talk of an upcoming recession. However, the overall economy remains on steady footing. GDP increased at a 2% annualized rate in Q1 according to the final estimate released last week. Employment remains the backbone of the economy, as the American labor force continues to add jobs at a very strong rate. The public equity markets have had a very good start to the year with the S&P 500 up 16.4% year-to-date. Inflation continues to decelerate, as the Personal Consumption Expenditures index posted a 3.8% annual growth rate in May. As of now, the soft landing that many economists were questioning when the Fed began raising rates at a torrid pace, is very much in play. There may be a slight recession, or the economy may continue its expansion. Either way, the magnitude of growth or decline will be limited in the second half of 2023 and into 2024.
Multifamily fundamentals remained flat to end the first half of the year, providing further evidence of a generally weak spring leasing season. Net effective rent is down 80 basis points year-over-year, and it is difficult to see that trend reversing over the course of the next six months. I expect a typical late Q3 and Q4 rent decline, which should keep year-over-year rent growth negative at the national level. Traffic and leases have yet to decline, but they did not experience significant growth during Q2. Spring is traditionally the strongest period for leading indicators, and the growth we’ve seen in past years just never materialized this year. Occupancy continues to decline and may drop below 94% at the national level if renter demand weakens further
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