House, Apartment Renters Keep Getting Good News
Prices have been falling but it’s the markets where costs have gone down that might be the biggest piece of news.
Prices have been falling but it's the markets where costs have gone down that might be the biggest piece of news.
If the real estate market has been through a rough few years, those navigating the rental market have even more stories -- from the Phoenix homes now renting for as much as similar properties in the Bay Area to the New Yorkers who, after getting a deal during the pandemic, saw their rent raised by as much as 65%.
Many of these stories come down to high demand and decades of underbuilding. Locations such as Phoenix, Miami, and certain parts of North and South Carolina were particularly popular destinations for those leaving urban centers during the pandemic. They were, as a result, subject to some of the most drastic increases.
The median rent for a one-bedroom apartment nationwide, meanwhile, was $1,454 in December 2022. This is a 4.2% increase from 2021 but also a 1.4% drop from a month ago -- a clear sign that real estate prices cannot rise indefinitely as cities with overinflated markets start to self-correct.
What's Going On With Rental Prices In Many Small Cities?
According to Realtor.com's monthly rental report, the city with the steepest drop in monthly rental prices was Riverside, California. In November 2022, the rent price for an average of apartments ranging from a studio to a two-bedroom was $2,071 -- a 5.5% drop from the year before.
The city of 320,000 is an hour's drive away from downtown Los Angeles and was particularly popular for those looking for a less dense alternative. This flurry of activity quickly spurred developer interest and a rush of new construction that, local agents report, was too ambitious for the city's long-term prospects.
"People started to move back to big cities," Jiayi Xu, an economist for Realtor.com, said in a statement. "During the [COVID-19] pandemic, people were moving to the Sun Belt areas like Florida. Now, when we look at data from Boston and Chicago, demand there is up."
The other two cities among Realtor's top three all have a population above 500,000 people -- the year-over-year drop in rent prices in Las Vegas, Nevada, and Sacramento, California was a respective 4.9% and 4.8%.
While neither of these places tells the same "urban exodus and then return" story, Las Vegas and Sacramento both saw high numbers of newcomers during the pandemic. Prices in both cities soared in the double-digits between 2020 and 2022 but, as the interest wanes, the market is now in the process of correcting itself from overly-inflated prices.
This Is Where You Should Be Investing
"Many newly remote workers left the pricey Bay Area and moved to Sacramento, where real estate prices and the cost of living were significantly lower," Realtor.com writes of the latter. "[..] But now that the influx of new residents is ebbing and locals are getting priced out, prices have begun coming back to earth."
In fact, Riverside was the only smaller city to make the list -- others in the top ten include Louisiana's New Orleans, Arizona's Phoenix, and Georgia's Atlanta.
This news is undeniably good for renters who have been hit hard by increases in the above-mentioned cities -- the shuffling pushed some long-time residents to look elsewhere amid an influx of higher earners from out of town.
For those looking to invest, the largest cities on this list are likely to continue to bring in steady returns -- demand is still very strong and the drop is largely a correction from the disproportionate increases seen in the last two years.
SEE THE FULL LIST OF CITIES WHERE RENT PRICES ARE FALLING THE MOST HERE.real estate pandemic covid-19
US Job Openings Unexpectedly Soar Above Highest Estimate Even As Number Of Quits Tumble
US Job Openings Unexpectedly Soar Above Highest Estimate Even As Number Of Quits Tumble
For those following the recent sharp drop in job openings,…
For those following the recent sharp drop in job openings, or perhaps merely fascinated by the narrative that AI will cause a margin-busting corporate revolution as millions of mid-level employees are replaced by a cheap "bullshitting" AI algorithm, then today's latest bizarro JOLTS report will come as a shock. That's because after three months of sharp declines, the BLS reported that in April the number of job openings soared by 358K from an upward revised 9.7 million to 10.1 million, the biggest increase since Dec 2022...
.... and printing not only above the median consensus which expected the trend to continue with 9.4 million job openings this month, but came higher than the highest Wall Street estimate! As shown in the chart below, the delta to median consensus print was a whopping 703K.
According to the BLS, the biggest increase in job openings was in retail trade (+209,000); health care and social assistance (+185,000); and transportation, warehousing, and utilities (+154,000)
The sudden, bizarre reversal in the job openings trend, meant that after falling to the lowest level since Sept 2021, in April the number of job openings was 4.446 million more than the number of unemployed workers, the highest since January.
Said otherwise, after dropping to just 1.64 job openings for every unemployed worker, the lowest since Nov 2021, in April there were 1.79 openings for every worker, a sharp spike back to levels that the Fed does not want to see.
To be sure, none of the above data are credible for reasons we have discussed before but the simplest one is because the response rate of the JOLTS survey is stuck at a record low 31%. Which means that only those who actually have job openings to report do so, while two-thirds of employers are either non-responsive or their mail is quietly lost in the mail.
Another reason why today's data is meaningless is that even as employers allegedly put up many more job wanted signs, the number of workers actually quitting their jobs - a proxy for those who believe they can get a better-paying job elsewhere, and thus strength of the overall job market - tumbled by 129K to 3.8 million, the lowest number since May 2021.
Even the Fed's WSJ mouthpiece Nick Timiraos ignored the stellar headline print, and instead focused on the plunge in quits, writing that the "rate of workers who are voluntarily leaving their jobs (including leisure and hospitality) is returning closer to pre-pandemic levels, a possible sign of less tight labor markets. Quits tend to rise when workers think they can receive better pay by changing jobs."
The rate of workers who are voluntarily leaving their jobs (including leisure and hospitality) is returning closer to pre-pandemic levels, a possible sign of less tight labor markets— Nick Timiraos (@NickTimiraos) May 31, 2023
Quits tend to rise when workers think they can receive better pay by changing jobs. pic.twitter.com/hAEAMy1I81
And the biggest paradox: as pointed out by Peter Tchir of Academy Securities, the seasonally adjusted JOLTS quits rate was 2.4 (we reached a "peak" of 2.4 in July 2019), while the Hires rate (also seasonally adjusted) was 3.9% just like it was 3.9 in July 2019. So allegedly there are 3,000,000 more jobs available now than then.
So what to make of this bizarro, conflicting report?
Well, after three months of drops in job openings, at a time when it is especially critical for Biden to still maintain the illusion that at least the labor market remains strong when everything else in the senile president's economy is crashing and burning, it appears that the BLS got a tap on the shoulder once again, especially when considering that the one category that will be most impacted by ChatGPT and which according to Indeed is seeing a collapse in job postings was also the one category that had the highest number of job openings.
The U.S. Office Sector: Further Disruption and Rightsizing May Give Way to a Golden Age
The NAIOP Research Foundation, as part of its Industry Trends meeting, recently hosted a panel discussion on what’s next for the office sector. The panelists…
The NAIOP Research Foundation, as part of its Industry Trends meeting, recently hosted a panel discussion on what’s next for the office sector. Analysts from leading service firms joined NAIOP Research Foundation Governors and office developers Greg Fuller, president and COO, Granite Properties and Paul Ciminelli, president and CEO, Ciminelli Development, to discuss problems and potential opportunities. The panelists agreed that the sector will undergo a shakeout that will include transformation, streamlining, new approaches to work and holistic solutions.
A “Broken” Market
Remote work and economic headwinds have created a negative demand shock in the office sector and a temporarily “broken” market that has not yet reached stability. Before the pandemic, office workspaces were densifying, with less square footage assigned per employee. Remote work and downsizing accelerated this trend, with tenants now needing less space per employee. Although office-using employment has rebounded from the brief pandemic-induced recession, office space demand has declined sharply. Phil Mobley, national director of office analytics at CoStar, estimated that the gap between office-using employment and previously expected demand could be as much as 400 million square feet. As supply continues to come online, vacancy rates will continue to climb over the next three years with negative absorption levels higher than during the Great Financial Recession.
According to Mobley, sublease availability is a key indicator of the market’s health, and it has more than doubled since 2019 and continues to rise. While transactions have slowed down, the ones that have taken place in the last two years have been at lower price points, but with strong fundamentals such as lower cap rates, which gives the impression of positive price growth. However, this masks some of the underlying problems that will inevitably come to light during loan maturities and price discoveries. The Mortgage Bankers Association reports that over 40 percent of office loans are maturing in the next 20 months.
The Hardest-hit Buildings
Not all markets, nor all types of office buildings are experiencing dramatic setbacks. CBRE’s Global Head of Occupier Thought Leadership, Julie Whelan, and her team conducted a study to identify the buildings that saw the most significant increase in vacancies. Their research revealed that smaller buildings (between 100,000-300,000 square feet) constructed between 1980 and 2009, located primarily in downtown areas with limited surrounding amenities and/or in high crime areas, were the most affected. Furthermore, the study found that only 10% of the buildings in the 64 markets examined accounted for 80% of the vacancies from Q1 2020 to Q1 2023.
During the pandemic, the vacancy rates of buildings in downtown markets have surpassed those of suburban areas. Specifically, 41% of buildings with the highest vacancy rates are in downtown markets, mainly in the Pacific Northwest and Northeastern regions of the United States. For instance, San Francisco’s vacancy rate has surged from 4% before the pandemic to almost 30% due to its reliance on the tech sector. Additionally, buildings located in high-crime areas (usually downtowns) and those with fewer adjacent amenities (usually suburbs) are struggling to retain tenants. However, there are opportunities to reposition or reinvent these properties, but they will require innovative public-private partnerships and community-based approaches. What surrounds office buildings, such as safe and walkable mixed-use communities, is just as crucial as what is inside them, according to Whelan.
Back to the (New) Office
The shift to remote and hybrid work has had a significant impact on office space demand. However, many companies are realizing that returning to the office more often offers advantages. While some employers have opted for 100% remote, hybrid, or office-centric policies, Lauren Hasson, the vice president of workplace strategy at JLL, has noticed a growing number of companies that want their employees back in the office at least three days a week. Studies have shown that it is difficult to engage and mentor employees who are not physically present. Furthermore, there has been a decrease in innovation, as evidenced by a decline in patent applications. Remote job postings have decreased, but employee demand for remote work remains high. Remote job listings on LinkedIn reached their peak in early 2022 at around 20% before recently falling to 12%. However, over 50% of job applications submitted are for remote positions, indicating that many job seekers may need to accept hybrid or in-person jobs. Markets with higher costs of living, intense talent competition, and long commutes, such as Boston, San Francisco, and New York, tend to advertise a higher percentage of remote positions and have slower rates of return to the office.
Hasson has reported that companies that require employees to work in the office only one or two days a week have the highest turnover rates. Thus, companies that offer either full-time remote or full-time in-office work have a better chance of retaining their talent. However, tenants that require in-person work are offering more amenities, and flexibility while creating C-suite positions such as “Chief Workplace Experience Officer” to ensure employee satisfaction and engagement. Hasson believes that enhanced office workspace will become the ultimate recruiting tool, similar to how prospective students consider a university’s athletic facilities and campus environment. According to Hasson, the new experiential office environment, which will be fueled by innovation, creativity, employee diversity, and cutting-edge technology, will recalibrate the sector and ultimately usher in a “golden age” of work.
According to Ciminelli and Fuller, the office market is going through both cyclical and structural changes. While some office properties are flourishing, others lack the necessary amenities and locations to attract employees. Fuller noted that pre-pandemic, office buildings were rarely completely occupied, with a strong occupancy rate of 72%. Currently, occupancy rates vary between 40 and 65%.
Certain buildings are structurally obsolete or not ideal for conversion, particularly when considering residential use. In some cases, it may not be feasible to convert due to the property’s floorplan or location. Furthermore, the costs associated with redevelopment have risen considerably, making it necessary to acquire properties at lower costs.
Despite the challenges ahead, Fuller and Ciminelli anticipate opportunities once the dust settles. The office market will gradually reach an equilibrium as employees return to work, albeit with more flexibility and discipline in office space utilization. Like the retail sector, the office market will undergo a rightsizing process, ultimately emerging more streamlined and beneficial for both employees and employers.recession pandemic
April JOLTS report noisily shows continued deceleration
– by New Deal democratIt is always a bad idea simply to project a current trend forward, especially with data series that are noisy and heavily revised….
- by New Deal democrat
It is always a bad idea simply to project a current trend forward, especially with data series that are noisy and heavily revised. That was certainly on display with the April JOLTS report.
For the last several years, the jobs market has been a game of “reverse musical chairs,” where there are always more chairs than participants. Those employers whose chairs weren’t filled had to increase their wage and/or benefits offerings, or go without. This was good for labor, but certainly put pressure on prices as well.
Last month, there were steep declines in job openings and hires also declined significantly. This morning’s report reversed some of those dynamics, while the overall trend of deceleration remained intact.
Here is the longer term view of all 3 metrics from the series inception, better to show the current situation with the historical one before the pandemic hit:
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