Rent Growth Improves as Concessions Fade - RAOT Week of Nov 10th 2024

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

Fed Cuts Rates Again, Notes Low Growth for Market Rents

The federal funds rate was lowered by 25 basis point last week following a 50-point cut in September. The Fed is trying to keep the labor market in solid shape while also managing inflation.

Discussing inflation, Fed Chair Powell made a reference to the rental housing market. In summary, he said there is low inflation for market rents on new leases. That observation isconsistent with the readings from Radix data. At the national level, effective rents are still lower than they were at the end of 2022.

Mortgage Rates Head the Other Direction

It might seem counterintuitive, but mortgage rates have increased for six consecutive weeksdespite the Fed lowering the federal funds rate. According to Freddie Mac, the average interest for a 30-year fixed rate mortgage increased from 6.08% in late September to 6.79% last week. Itwas the highest mortgage rates have been since July.

Mortgage rates are influenced by Treasury yields. A strong outlook for the economy can lead tohigher yields which puts upward pressure on mortgage rates, especially if inflation increases. 

This trend continues to impact the for-sale housing market, while providing some benefit to rental housing demand. Freddie Mac noted that home purchase applications have dropped 10% since mortgage rates started to increase in early October.

Numbers to Watch This Week

The U.S. presidential election has dominated news cycles, but a few notable economic reports will be released this week. 

October’s results for the consumer and producer price indexes will provide the latest reading on inflation. The Commerce Department will release its report on last month’s retail sales as the holiday shopping season gets into swing. Consumer spending has been strong and it contributed to the better-than-expected GDP growth for Q3 2024.

Multifamily Highlights

Annual effective rent growth was on the doorstep of positive territory in this week’s report. At the U.S. level, effective rents were down a mere 0.1% from the prior year. One of the reasons for the improvement in rent growth the past few months has been a decline in concessions. 

Effective rents are up at least 4.0% from a year ago in Baltimore, Boston, Chicago, Columbus, Detroit, New York, San Jose, and Seattle. Many of the top performing markets have seen a gradual easing of concessions throughout the year. 

In San Jose, the average concession value peaked at close to $180 per unit a year ago. The market’s average was just below $40 per unit last week. In Chicago, it went from almost $50 per unit last December to $10 in the current report. 

Those numbers are based on the average of all floor plans and properties whether they use concessions or not. Expect to see this trend continue as multifamily fundamentals come back into balance.


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