Multifamily Permitting Down 10% from Pre-Pandemic Level – RAOT Oct 20th 2024

This is a narration of our weekly Rent and Operating Trends Report.

Retail Sales Stronger than Expected, Again

Consumer spending outpaced expectations in September, and August’s better-than-expected results were unrevised. Retail sales were up 0.4% from the prior month and 1.7% from a year ago. Discretionary spending at restaurants, drinking establishments, and clothing stores helped boost the number. 

It is yet to be seen if strong sales will continue through the holiday season. While spending is up, consumer sentiment remains sluggish even though the Bureau of Labor Statistics recently reported strong wage growth and more moderate inflation. 

Strong GDP Estimates for Q3 2024

The Atlanta Fed’s latest estimate for Q3 GDP growth is 3.4%. The organization’s model, GDPNow, had it as low as 2% in August, but recent economic reports gave it a boost during the last two months. 

The Bureau of Economic Analysis will release its advance estimate of GDP on October 30.There is growing sentiment that continued strength in the economy could lead to a more moderate interest rate cut of 25 basis points by the end of the year. 

Permitting for Multifamily Housing Yet to See an Uptick

For the 12 months ending September 2024, total housing permits were down 2.9% from the prior month and down 5.7% from a year ago on a seasonally adjusted basis. Permitting for multifamily units continued to be the main driver of the decline. The industry had 398,000 units permitted in the last year, down 17.4% on an annual basis. 

The latest multifamily permitting level is down significantly from the construction boom period a couple of years ago when it eclipsed more than 700,000 units permitted within a 12-month period, but it is also down from the period immediately before the pandemic. From 2015-2019, the industry’s annual permitting level averaged 442,000 units. 

Normal, or even muted, levels of supply are on the way the next couple of years which should help operational metrics rebalance after a period of significant challenges.

Multifamily Highlights

Traffic and occupancy continued to tick down in the latest week’s results. The trend can mostly be attributed to seasonality, but the rates themselves are weaker than in other comparable periods.

Headed into 2024, Radix forecasts indicated occupancy would average at lower rate than the prior year due to elevated supply and slowing job growth. That prediction has come to fruition, but results are expected to rebound in 2025 as supply slows significantly in many markets. 

Effective rents were stable from the previous week. If occupancy improves in 2025, concessions should moderate. As of the latest week, roughly half of markets had lower effective rents compared to the prior year.

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Explore our webpage for more insights and resources:
https://bit.ly/Radix_Website