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Apartment Rents Slide Across All US Cities Amid “Crush” Of New Supply
Apartment Rents Slide Across All US Cities Amid "Crush" Of New Supply
Back in September, when looking at various leading rental market indicators,…
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Back in September, when looking at various leading rental market indicators, we reported that "Manhattan Apartment Rents Finally "Plateau" After Red-Hot Summer" a trend reversal that was also observed at the national level as we observed in "Nationwide Rents Drop For First Time In Two Years." With rents peaking in August, two months later the retnal drop accelerated as we discussed in "Just Tumbled The Most On Record As Economy Craters", incidentally something we wrote just hours after the latest FOMC, when Fed chair Jerome Powell clearly hadn't yet gotten the rent memo as the following two quotes from his November FOMC presser reveal:
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POWELL: POINT AT WHICH RENT INFLATION SLOWS IS STILL FAR AWAY
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POWELL: AT SOME POINT YOU'LL SEE RENTS COMING DOW
Fast forward to today when not just Powell but everyone at the Fed should be fully aware that rents have been sliding for almost half a year now, because as Powell's favorite WSJ mouthpiece himself wrote today, "apartment rents fell in every major metropolitan area in the U.S. over the past six months through January, a trend that is poised to continue as the biggest delivery of new apartments in nearly four decades is slated for this year" while tenants are now maxed out on how much income they can devote to rent.
Citing our favorite real-time rental market indicator, listing website Apartment List whose data we used in Sept 2021 when we wrote "What Rental Hyperinflation Looks Like: "Soaring Prices. Competition. Desperation" to explain why rents are far higher than the CPI reports and why the prevailing groupthink consensus of "transitory inflation" was dead wrong, WSJ reported Nick Timiraos writes that renters with new leases in January paid a median rent that was 3.5% lower than they would have paid last August...
... "the first time in five years that rent fell every month over a six-month period, according to the same estimates."
Realizing what our readers - if not the Fed - knew long ago, namely that to get an accurate picture of rents and inflection points in the apartment rental market one needs to look not at the CPI's Owner Equivalent Rent data which is delayed by approximately 12 months, Timiraos says that four other market measures by housing-data companies also show that new-lease rents either fell or remained flat in January compared with the previous month, extending a streak of monthly rent declines that began at the end of the summer.
This can be seen in this Goldman chart which uses primary data from CoStar which also shows that rents peaked in August and have been declining since, even if they clearly have a long way to go to catch down to their pre-covid levels.
The softening rental market follows an unprecedented run for the apartment and home-rental industry put into motion by the pandemic. Pent-up demand for housing exploded in the months after the introduction of Covid-19 vaccines in late 2020 and a surge in people searching for apartments lifted rents 25% over two years.
But now that covid stimmies have long run out, the recent rental declines are a sign that many tenants have maxed out on how much of their income they can devote to rent, while the specter of layoffs has created new concerns for some. Other would-be renters who are living with family or friends, remain sidelined by prices that are still far too high for their budgets.
And while some seasonal stalling in rents is normal, Timiraos cautions that according to projections from CoStar, the market faces a significant headwind in the form of a supply "crush", namely the biggest delivery of new supply since 1986: nearly half a million new apartments are coming on line this year as developers seek to cash in on the high rents that tenants have been paying. Indeed, as discussed over the weekend, countless renters facing the most unaffordable housing market in generations...
... are unable to to buy a home because of higher mortgage rates and steep prices, so rentals have been in high demand.
Rents, of course, are not alone, and they have retreated alongside sharper recent declines in home-sale prices, which fell 3.6% between June and November, according to the Case-Shiller. Soaring mortgage rates and softening buyer demand have been weighing on home prices, despite a period this year when lower rates sparked an uptick in buyer interest. Ironically, the more unaffordable home purchases have become, the greater the demand for rentals... at least until a tipping point of sorts was hit several months ago.
The good news is that with a long delay, the coming tidal wave of new apartment supply - especially in places where housing inventory remains unusually low to the benefit of home sellers - will give renters more choices, making it not only more difficult for landlords to raise rents at rates seen early in 2022, when rent growth was at a near-20% annual clip, but forcing many to cut rents outright.
Indeed, the supply of new rentals is already having an impact: according to software company RealPage, the share of apartment tenants who renewed leases declined in January to 52%, the lowest level for that month since 2018; the data suggests some tenants are finding better deals at other buildings.
“Renters facing lease renewals suddenly have a lot more options,” RealPage economist Jay Parsons said in a report. Landlords are likely to start dropping their renewal rents to prevent tenants from leaving, he added.
Ironically, asking rents are sliding just as the much-delayed shelter cost component of the CPI basket soared by oar 7.9% in January compared with the same month a year earlier. Of course, as we long ago noted, the impact of rent declines tends to lead what is expressed in the CPI by as much as 12 months. Furthermore, as we discussed recently, many renters are in the middle of leases signed before recent price drops. That is one reason why the rising cost of rent reflected in the CPI shows annual price growth that is still higher than market measures, which track new leases.
And while rent has been declining sequentially for five months now, rent growth still remains positive on an annual basis according to most data sources; even so the pace of growth is rapidly slowing and if it continues to decelerate beyond winter, it would help pull down services inflation figures, of which housing costs are the biggest component. New-lease rent growth ranged from about 2% to 6% in January compared with one year prior, according to most market reports, down significantly from the pace of growth in early 2022. As more leases expire, analysts expect CPI figures to better reflect the lower costs of new leases.
Where are the rental drops the biggest?
Citing the latest Apartment List data, Timiraos notes that in the months since August, new-lease rents have fallen most sharply in some of the nation’s biggest metro areas. Seattle rents have tumbled 8%, while rents in Boston and Las Vegas have fallen 6%, according to Apartment List.
The Seattle metro area’s median rent was $1,706 in January, while in the Boston metro area it was $1,879. Other measurements of rent with different sample criteria show much higher rent prices, but similar long-term trends in price movement.
Notably, none of the 52-largest metro areas tracked by Apartment List experienced positive rent growth over the period. Indianapolis and Miami were the best performing cities, with rental declines of just 1%. It was all downhill from there.
Rents for single-family homes, which had also increased sharply before last summer, now are stalling, too. The average national asking rent for a house rose just one buck in January, compared with December, to reach $2,070, according to data provider Yardi Matrix.
Assuring further rental declines, apartment vacancies have been rising since last fall, due to weaker demand from potential renters. Fewer people are flocking to Zoomtowns—communities that experienced a surge in population from an influx of remote workers—such as Boise, Idaho, or Phoenix compared with earlier in the pandemic, a recent report from listing website Zumper notes.
Of course, there is a lot of room to fall: even after a 3.5% decline in new-lease rents since last summer, rents in many cities remain 20% or 30% higher than they were when the pandemic began. Rents in the Tucson, Ariz., Tampa, Fla., and Miami metro areas are all 35% higher than in March 2020, according to an Apartment List report.
“Renters are still having a tougher time than they were even a year-and-a-half ago,” said Chris Salviati, economist at Apartment List. However, if the Fed keeps rising rates and ignoring the general economic malaise - which the Biden admin is doing everything to cover up - rents should be in freefall in just a few months, but don't expect the Fed to respond: as usual it takes the US central bank about 6 to 9 months to realize it is always behind the curve.
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The Question You Should Ask Whenever You’re Wrong
“Never bet on the end of the world. It only comes once, which is pretty long odds.” — Arthur Cashin, New York Stock Exchange Floor Manager (“Maxims…
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“Never bet on the end of the world. It only comes once, which is pretty long odds.” — Arthur Cashin, New York Stock Exchange Floor Manager (“Maxims of Wall Street,” p. 110)
Since Joe Biden gave his State of the Union (or shall we say “Disunion”) speech last week, I’ve encountered a plethora of negative comments about the future of America.
Is the American Dream Over?
“If Biden is re-elected, it will be the end of the American Dream as we know it,” said one pundit on Fox News.
The critics are out in force. Supply-side economist Steve Moore writes, “Biden is intentionally trying to dismantle the American economy with his imbecile energy, climate change, crime, border, inflation, debt and high tax policies.”
Glenn Beck, the host of Blaze TV, recently warned that America may face multiple terrorist attacks in one day, similar to 9/11, given the open borders policy of the Biden Administration.
Recently, I attended a private meeting of political leaders and pundits who thought that President Biden’s address was the most polemical, shrill and divisive talk they had ever heard.
I’ve been watching State of the Union addresses all my adult life, by both Republicans and Democrats, and in many ways they are always polemical and divisive. What was amazing to me is how “sleepy” Joe Biden performed. He must have been well rested and jacked up with some pretty incredible drugs to do as well as he did.
President Biden did say some things that were crazy, such as when he asserted that voting for former president Donald Trump is a “vote against democracy.”
Hey, wasn’t it the Democrats who want to remove Trump from the November ballot in Colorado and other states? Talk about anti-democratic! I was glad to see the Supreme Court ruled 9-0 against the Colorado decision. Let the people decide. Isn’t that what democracy is all about?
Why Then Is the Stock Market at an All-Time High?
Kevin Roberts, the new president of the Heritage Foundation, recently declared, “The American Dream is being threatened as never before!”
If that is true, why is the stock market at or near an all-time high? What are the prophets of doom and gloom missing?
That’s the question I always ask when I’m wrong about something:
“What am I missing?”
Wall Street is a good bellwether of what is going on the country. So far, the benefits outweigh the costs. The economy is recovering from the Covid pandemic, inflation is coming down, corporate profits are strong, new technologies are being introduced and there’s a strong movement to reverse the “cancel” and “woke” culture in the United States.
We have gridlock on Capitol Hill that is keeping a lot of bad legislation from becoming law. The Supreme Court has reversed many bad decisions by the lower courts.
We Remain Fully Invested
So, all is not lost after all. In my newsletter, Forecasts & Strategies, we remain fully invested, despite occasional corrections in the market.
We are also well diversified in some “contrarian” investments such as Bitcoin and gold, both of which continue to outperform and offset any selloffs in the stock market.
By remaining positive and fully invested, we have made good money in 2024.
The American Obituary Has Been Written Many Times
The American economy has been left for dead many times, only to be resuscitated with renewed vigor. We have survived civil and world wars, the Great Depression, the inflationary 1970s, terrorist attacks and more.
As J.P. Morgan once said, “The man who is a bear on the United States will eventually go broke” (“Maxims,” p. 111).
I encourage you to read my favorite J.P. Morgan story found on pp. 218-219 in “The Maxims of Wall Street.” See www.skousenbooks.com.
American exceptionalism is alive and well. We are still the Promised Land with millions wanting to live and work here.
Solving Our Unfunded Liability Problem: Look to Canada!
One serious problem in America is the irresponsible, out-of-control deficit spending and national debt, created by both Republican and Democratic leaders over the years. The trouble is getting worse, with rising interest rates to pay the debt and the growing unfunded liabilities from Social Security and Medicare.
Robert Poole of the Reason Foundation warns:
“The Congressional Budget Office (CBO)’s latest 10-year projection is frightening. CBO projects annual federal budget deficits to increase steadily, exceeding $2.5 trillion by 2034, assuming current policies continue… The federal government is projected to borrow an additional $20 trillion over the next decade, the CBO estimates.
“One driving factor is the impact of higher interest rates on the current $34 trillion (and growing) national debt… By 2034, annual interest expense is projected to be $1.6 trillion — more than one-fourth of all federal tax revenue.
“The Penn Wharton Budget Model suggests that the United States has about 20 years to fix this debt/deficit problem — ‘after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt.’
“On August 2, 2023, Fitch Ratings downgraded the federal government’s long-term debt rating from AAA to AA+. And on November 10, 2023, Moody’s Investors Service reduced its outlook on the U.S. credit rating from ‘stable’ to ‘negative.’ Standard & Poor’s did its downgrade in 2011. These are warning shots across the ship of state’s bow.”
Sounds ominous. What to do?
Canada faced a similar problem back in the mid-1990s. Deficits were getting out of hand, and the Canadian dollar was sinking. The Conservative Party and the Liberty Party of Canada worked together and resolved to cut government spending, lay off federal workers and then went on a supply-side tax-cutting program that resulted in economic growth and deficit reduction.
What about the unfunded liability problem, which causes national bankruptcy? Again, Canada offers an incredible example of solving the issue.
Last week, Andy Puzder and Terrence Keeley wrote an op-ed in The Wall Street Journal on the success of the Canadian social security system, which has earned a 9.3% annualized return over the past 10 years (versus almost zero return in our Social Security Trust Fund). They wrote:
“The Canada Pension Plan’s superiority stems from its asset allocation. The fund invests about 57% of its assets in equities and 12% in bonds; the rest is divided among real estate, infrastructure and credit. Over the past 10 years, the Canada Pension Plan has realized a 9.3% annualized net return. Similarly to how Social Security works, Canadian citizens pay into the program and are guaranteed lifetime benefits.”
At some point, the United States will need to imitate the Canadian model. Here is a chart on the difference between the two:
In sum, there are solutions to all of our problems — if we know where to look and remain optimistic.
Sound Advice from the ‘Investment Bible’
In my home, I have a whole section of my library devoted to dozens of books written by doomsayers and Cassandras, such as “The Coming Deflation”…. “How to Prosper During the Coming Bad Years”… “Bankruptcy 1995”… “The End of Inflation” and so on.
I’ve also collected a bunch of quotes on doomsayers and Cassandras in “The Maxims of Wall Street.”
Jim Woods, my colleague at Eagle Publishing, is a big fan.
Jim states, “I’ve always felt that a collection of wisdom from the best brains in that industry has been most special to me. And on this front, there is no better ‘how to’ anthology than the one by my friend, fellow Fast Money Alert co-editor and brilliant economist, Dr. Mark Skousen. The ‘Maxims of Wall Street’ is a collection of some of the greatest wisdom ever to flow from the biggest and brightest names on Wall Street. Great investors such as Jesse Livermore, Baron Rothschild, J.P. Morgan, Benjamin Graham, Warren Buffett, Peter Lynch and John Templeton are just a sneak peek at some of the names you’ll discover in this fantastic collection. Then, there is profundity from the likes of Ben Franklin, John D. Rockefeller, Joe Kennedy, Bernard Baruch, John Maynard Keynes, Steve Forbes and numerous other luminaries too copious to mention.”
If you don’t have an autographed copy of my collection of quotes, stories and wisdom of the world’s top traders and investors, please order a copy now.
It is in its 10th edition, having sold nearly 50,000 copies. It has been endorsed by Warren Buffett, Kevin O’Leary, Jack Bogle, Kim Githler, Bert Dohmen, Richard Band and Gene Epstein in Barron’s.
I offer it cheaply to my Skousen CAFÉ readers: Only $21 for the first copy, and all additional copies are $11 each (they make a great gift to clients, friends, relatives and your favorite broker or money manager). I sign and number each one, then mail it at no extra charge if you live in the United States. If you order an entire box (32 copies), the price is only $327. As Hetty Green, the first female millionaire, once said, “When I see a good thing going cheap, I buy a lot of it!”
To order, go to www.skousenbooks.com.
You Nailed it!
Friedrich Hayek Won the Nobel Prize 50 Years Ago
“Mises and Hayek articulated and vastly enriched the principles of Adam Smith at a crucial time in this century.” — Vernon Smith (2002 Nobel prize in economics)
March 23 is the anniversary of the passing of a giant in economics — the Austrian economist Friedrich Hayek (1899-1992).
He is most famous for his bestselling book “The Road to Serfdom,” written near the end of World War II, an admittedly a pessimistic book, warning the West that its move toward socialism, fascism and communism was indeed a “road to serfdom.”
Then, when he won the Nobel prize in economics in 1974, he warned again of the dangers of “accelerating inflation,” which he said, were “brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things.”
Fortunately, we have moved away from the road to serfdom, especially after the collapse of the Berlin Wall and the Soviet socialist central planning model.
But the road to freedom has been a checkered one, and we must always be alert to losing our liberties in the name of inequality, fairness and social justice.
Last month, Tom Woods interviewed me in honor of the 50th anniversary of Hayek’s winning the Nobel prize. Watch the interview here.
Mark Skousen, Friedrich Hayek and Gary North in Austria, 1985
I had the pleasure of interviewing Hayek for three hours in the Austrian alps in 1985. He was especially happy to hear I resurrected his macroeconomic model in developing gross output (GO). See www.grossoutput.com, a measure of Hayek’s triangles.
This week, Larry Reed, former president of the Foundation for Economic Education, wrote this wonderful tribute to Hayek.
Highly recommended.
Good investing, AEIOU,
Mark Skousen
The post The Question You Should Ask Whenever You’re Wrong appeared first on Stock Investor.
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Walmart and Target make key self-checkout changes to fight theft
Both chains are making changes customers may not like, but self-checkout isn’t going anywhere, according to one industry expert.
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In parts of the world, public bathrooms come with a charge, but people pay on the honor system. The money charged allows for better upkeep of the facilities and most people don't mind dropping a small bill or some coins into a lockbox and many of the people who don't are likely dealing with larger problems.
The honor system, however, requires honor. It's based on the idea that most people are trustworthy and that they will pay their fair share.
Related: Beloved mall retailer files Chapter 7 bankruptcy, will liquidate
In the case of a bathroom, people cheating the system are only stealing a low-value service. In the case of self-checkout, a variation on the honor system, people looking to steal by "forgetting" to scan an item can be a very expensive problem.
That has led retailers including Target, Walmart, and Dollar General to make changes. Target has limited the amount of items you can scan at self-checkout at some stores while Dollar General has literally eliminated it in some locations.
Walmart, like Target, has experimented with item limits and limiting the hours of operation for self-checkout. Now, in some stores, the chain has decided to designate some of its self-checkout stations for Walmart+ members and delivery drivers using the Spark app.
Advantage Solutions General Manager Andy Keenan answered some questions about Walmart, self-checkout, and theft from TheStreet via email.
Image source: John Smith/VIEWpress.
What Walmart's self-checkout changes mean
TheStreet: What are the benefits of reserving self-checkout registers for Spark drivers and Walmart+ customers?
Keenan: The benefits include exclusivity and perks of membership, speed, and convenience when shopping.
TheStreet: If this rolls out more broadly, what do you anticipate being the impact on non-Walmart+ customers?
Keenan: There is the potential for non-Walmart+ customers to become agitated, they are losing convenience because they are not enrolled. Customers who are looking for convenience will have fewer options for speed to check out.
TheStreet: Do lane restrictions like limiting lanes to 10 items or fewer help reduce time spent waiting in lines?
Keenan: Yes, but retailers must have a diverse amount of check lane options including 10 items or fewer to ensure that the speed of checkout actually transpires.
TheStreet: Do you believe self-checkout is leading to partial shrink? If so, do you think that this move to shut off self-checkout lanes will help prevent theft in the future?
Keenan: Yes, self-checkout is leading to partial shrink. We believe this tends to be more due to errors in scanning and intentional theft.
There are already front-end transformation tests going on in stores, reducing the number of self-checkouts and shifting back to cashier checkouts in order to measure the reduction in shrink. Early indicators show that a move back to cashier checkouts combined with other shrink initiatives will help prevent theft.
Self-checkout is not going away
While changes are ongoing, Keenan believes self-checkout is here to stay.
“Self-checkout is not, as one recent article called it, a failed experiment. It’s actually part of the next evolution of the retail customer experience, and evolutions take time,” Keenan said in a web post about the findings of the 2024 Advantage Shopper Outlook survey.
He makes it clear that rising labor costs and struggles to find workers make some for of self-checkout inevitable.
“Since the pandemic, there’s been a revolution on hourly labor,” Keenan said. “Labor in certain markets that would cost you $16 an hour now costs you $19 or $20 an hour, and it’s a gig economy. The people who once stood at a checkout stand in the front of a store are now driving for Instacart or DoorDash because the hours are more flexible. They want to make their own schedule, and it’s varied work. Today, most retailers can’t offer that.”
Basically, while there are kinks to work out, self-checkout simply makes sense for retailers.
“The notion that we’re going to pivot away from technology that helps offset labor needs and will ultimately continue to improve customer experience because of some challenges is far-fetched. We need to continue to embrace the technology and realize that it may always be imperfect, but it will always be evolving. The noise that, ‘Oh, self-checkout might not be working,’ that’s just a moment in time,” he added.
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Good news and bad news Thursday: the bad news is real retail sales
– by New Deal democratThe bad economic news this morning was that after taking into account inflation, retail sales, which rose 0.6% nominally, were…
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- by New Deal democrat
Q4 Update: Delinquencies, Foreclosures and REO
Pharma industry reputation remains steady at a ‘new normal’ after Covid, Harris Poll finds
The Question You Should Ask Whenever You’re Wrong
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Walmart and Target make key self-checkout changes to fight theft
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