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Jeff Adler and Jack Kern hosted the semi-annual Yardi Matrix webinar on Thursday, November 10th. More than 300 participants dialed in to hear their data-based assessment of the economy and the multifamily market.
Our hosts covered a number of topics from the 2016 presidential election, to job growth and economic fundamentals, to specific markets and submarkets primed for growth in the coming years.
.Highlights of the webinar included:
Economic Fundamentals: The domestic economy continues to grow at a steady pace, creating new jobs at an average rate between 150,000 and 200,000 per month. Recent GDP growth shows signs of strength as output picked up in the third quarter, yet the economy has cooled slightly compared to prior years. Strong employment and modestly rising wages have supported the American consumer, which in turn has helped bolster the economy. Inflation remains tepid although, as Adler mentioned, there are two sides of the inflation equation. Goods inflation has remained flat and even negative at times, while services inflation, specifically education, rent and healthcare, has been rising significantly.
The State of the Multifamily Market: New apartment construction has been a major headline throughout 2016 and Yardi Matrix anticipates roughly 350,000 new units to be completed this year. While 2016 will be the largest year for new supply since the Great Recession, Adler noted that the majority of new supply is being built in only 10 markets across the country. As a result, certain high supply markets such as San Francisco, Houston, and Denver have seen rents decelerate throughout the second half of the year, while rent growth remains above 5% in many markets across the country, especially on the west coast. Demand remains strong and Adler indicated that pent up demand, especially among millennials, should provide a consistent and growing rental base in the years to come. Affordability has become an issue in certain cities that have experienced extreme rent growth in the past few years, and as a result, rents and occupancy for B and C units have been outpacing higher end units.
Strong Metros and Nodes of Intellectual Capital: Following up on the trends of rent growth and new supply, Adler explained his thesis of intellectual capital nodes. These nodes correspond with areas of strong job growth and amenities that attract residents and businesses. Central business districts often become nodes of intellectual capital in growing cities, but in addition to the CBD, suburban areas with friendly business climates and a good mix of live/work/play possibilities become areas of growth in a given market. We have seen new construction focus in the intellectual capital nodes, and for those nodes that have not had significant new supply, rents have far outpaced the rest of the market.
Effect of the Election: While it is still too early to determine the exact impacts the 2016 presidential election will have on the US economy and real estate market, Adler did focus on a key demographic and how it related to the election. Looking at a map of all US counties and how they voted, it is clear to see that the majority of counties voted for Donald Trump. However, the “blue” counties that voted for Clinton were concentrated along the coasts near urban areas. Recent trends have shown that urban cores and close suburban areas have experienced significantly stronger rent growth and supply growth than exurbs and rural areas. This also indicates that intellectual capital nodes and areas of growth leaned in the direction of Hilary Clinton, yet the rural regions carried the election for Trump.
Debt Market and GSE’s: One other effect or the election worth noting is its impact on US Treasury securities and borrowing costs for real estate firms. While the stock market remained relatively unaffected after short term volatility, the 10 year treasury rose 20 basis points the day after the election. Many economists believe Trump’s economic plan will lead to higher inflation and therefore higher interest rates. An increase in interest rates would also increase borrowing costs for developers and investors and as a result may have a dampening effect on real estate transactions and developments. Adler also discussed the “green” initiatives recently put in place by Fannie Mae and Freddie Mac. Under the new GSE programs, developers and investors have access to lower interest rates and are not limited to loan caps. As financing options become more challenging, the “green” initiatives become more feasible and enticing for those looking to finance real estate deals.
For more information and to hear the full webinar, please go to https://www.yardimatrix.com/events/webinars and download the fall webinar.
