An economy like today’s reminds me why I favor multifamily real estate. Stocks down, then up, now heading down. Inflation untamed. Came down some but is stubbornly holding on. Fed rate bumps all done? Or wait, not all done. New expectations as of three weeks ago of three more hikes, to be 75 basis points higher in a year. And layoffs in the tens of thousands. Blood in the streets?
But tenants are paying rent, not moving, and applications exceed vacant units. No one expects 10% rent increases but expectations are for rents to remain stable, high occupancy, and low delinquency. That’s a win. A big win. There is still probably a long way until we’re out of the woods, where rates are back in the 4’s, but when we underwrote the higher rates before we bought, that’s at least one worry we don’t have.
Unemployment has a long way to go up before the market can no longer absorb these job transitions. Amazon laying off 18,000 employees is unfortunate for those who lost their jobs, but Amazon hires smart and these people will find new work. And it is 1% of their workforce of 1.6 million. The other tech giants with big layoffs are mostly in a similar situation.
What is happening? Building starts have slowed, dramatically. Houses and commercial. What that means is that in two years the shortage of available apartment housing will be acute. Oh, and rates are likely to be lower. You think cap rates have been low over the last few years?