Decreasing Increases 🧪

In today’s edition:

• The Fed increased rates again as expected, while economists back off on recession predictions
• Rent growth is becoming comparable to pre-pandemic levels
• Invitation Homes makes a big purchase

🎯 What's Stirring

I am finally catching on. I have worked in data for many years, but I have only worked in ‘headlines’ for a few months. Reporting on data is tricky. What time horizon are you using? How far back is your comparison point? What are the underlying factors and assumptions at play? How many pandemics can you use for your control group? (bad joke…)

Nearly every key metric in 2021 or 2022 was an outlier in one direction or the other. Look at a time series for almost anything and it will look like someone’s elbow got bumped when trying to draw the line between 2020 and 2022 - New Construction, New Home Sales, Small Business Optimism, etc etc. Therefore anytime we see a year-over-year metric comparing 2023 to 2022 we have to take it with context, and ideally a comparison to 2019 would be included in that report. Kudos to Realtor.com (June Rental Report) and CoreLogic (Single-Family Rent Index) for doing this in their latest reports.

Depending on the metric you look at things might look promising or might look bleak compared with 2022, but to break the tie we can quote Fed Chair Powell from his most recent press conference, “We have a long way to go.”

• Wages surpassed inflation for the first time since early 2021, as hourly wages were up more than 4% YoY in June and overall consumer prices increased only 3% YoY. Sectors such as leisure and hospitality, manufacturing, and business services are seeing wages that outpace inflation, while the information sector is mainly flat. While these wage gains have led to more optimism for consumers (their assessment of future economic conditions improved, but they are still expecting a recession), the Fed continues to raise caution since strong wage growth will continue to buoy inflation above the goal of 2%. Also note that even this improvement in inflation-adjusted wage growth remains below the trend in the five years before the pandemic.
• Economists lowered their probability of a recession in the next 12 months from 61% to 54%, the largest month-over-month percentage drop since August 2020. Since the Fed began raising interest rates in March 2022, the economy has for the most part walked the tightrope with steady employment, moderate growth, and easing inflation. The forecasters doubled their prediction of 2023 annual GDP growth from 0.5% to 1% and a majority of them expect the Fed will cut rates in the first half of 2024 as the unemployment rate rises.
• Renters’ plans to move closely resembles a pre-pandemic leasing season, according to Buildium’s latest report. The survey showed that 41% of respondents will remain in their current rental when their lease ends, while 24% said they would likely move. Contrast these numbers to 2020 when 26% said they would stay and 32% said they would move. The report also analyzed the reasons for moving. In 2022, the top two reasons for moving were going to buy a home (35%) and moving to a more affordable rental (32%). These reasons declined significantly in 2023 (both down to 27%), giving way to an increase in reasons such as location for work/school, changes in household, and a change in space needs. It appears that a move for affordability is not as common in this environment (not surprising), and renters are becoming more focused on moving for personal or work reasons.
• Expenses will likely impact NOI even after inflation subsides, according to Moody’s Analytics. The report focused on commercial properties, and cited large increases in insurance costs (+73% since 2017), property taxes, and utility costs (+12% in 2022). These increased expenses are unlikely to decrease when interest rates go back down and inflation recedes, and if the economy softens later this year and into 2024, that would continue to negatively impact rent rates and therefore put downward pressure on NOI.
• The city council in Austin, TX approved a proposal to reduce the minimum lot size in single-family zoning for developers in hopes to alleviate affordability issues in the rapidly growing city. The plan reduces the minimum lot size by half, and increases the maximum number of units per lot from one or two to at least three. Affordability has been a major issue in Austin and homeownership for middle income earners in the city has decreased from 50% to 28% from 2010 to 2020. This will be an interesting test to see if an increase in supply leads to an increase in affordability.

📊 PlanOlabs Insights

Proprietary insights into the SFR industry from our research and consulting team

The PlanOlabs team tracks the number of rental properties listed each month, broken down by newly listed inventory and aged inventory. In the month of July, we saw a sharp decline in newly listed inventory (-2% MoM) and we saw a sizable increase in aged inventory (+21%).

The data tells us (and our clients tell us) that leasing has become much more difficult compared with the past couple of years. What to do about it? Read the full blog post here.

For more PlanOlabs Insights, click here.

🔍 I Like Big Data (Releases) And I Cannot Lie

All the relevant data releases from the past month

• CPI increased 4.0% over the last 12 months down from 4.9% in April. This was the smallest 12-month increase since the period ending March 2021.
• In May, construction added 25,000 jobs. Over the prior 12 months, construction had added an average of 17,000 jobs per month.
• Single-Family Starts are up 18% MoM and Multi-Family “under construction” is up for the 12th consecutive month at 17% YoY.

For the rest of the housing and economic indicators we track, check out the full blog post here.

📰 SFR In The News

Everyone knows this stuff and you should too

• Zillow launches new marketing campaign broadening its scope beyond search
• Ownify receives $7 Million in seed funding
• Lafayette RE LLC acquires four new communities
• Poplar Homes acquires venture REI's single-family property management business
• Starwood Capital Group looks to sell 2,000 homes
• Second Avenue announces partnership with Sculptor Real Estate

The Beaker is a bi-weekly briefing from PlanOmatic on the economy, housing, and the forces shaping both. Have something we should cover? Reply to this email.

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