The Real Signal #141 - Renting At Best Value Ever — Positive Multifamily Signal
Plus: Dollar Valuation - Bottom or Further to Fall? and US Manufacturing Signal - Flat and Low
Renting At Best Value Ever — Positive Multifamily Signal
“The difference in cost between buying a house and renting has reached the highest level on record.
Today, your monthly payment for buying a house is $2,800/month.
While the typical rent is $2,049.
The resulting $750 premium to buy means that many would-be first-time homebuyers are content to rent and wait out the market….”
Scott Choppin Note: Rents and Mortgage Payment have been well correlated for decades, only varying in the 2008 recession and post-2020 through today. This differential not only continues to support renting as the better value (i.e. better to rent than buy) — it’s at the highest value since 1980.
Remember, our last peak production years for ground up multifamily were in the mid-80’s with no apparent change in monthly rents. In 2008, when mortgage payments peaked, there was no major change in the comparable time period monthly rents, and post-2008 a slight drop in monthly rents.
In the post-2020 time period, we see a different pattern, with monthly rents growing much more rapidly than the historical trend. Looking to the future, we can anticipate that mortgage payments may fall similarly to the post-2008 time period based on SFR value declines. I expect the same non-effect on monthly rental rates with that period’s SFR value decline as happened post-2008.
We are in a “higher for longer” monthly rental rate epoch. Worst case, monthly rents may temporarily plateau (flatten), with no expectation for rental rates to go negative in supply constrained markets. Paired with a total lack of near-term future ground up new supply, rental rates, particularly in supply constrained markets like California will be stable in a recession and return to growth, maybe significant growth when the market lack of supply meets economic growth. Your mileage may vary in oversupplied markets, like Austin, where rental rates are already declining.
Generally though: bullish multifamily, bullish ground up multi in ‘27/28 time period. (As a multi developer I am biased, but this thought process is supported - see Jay Parsons about the ‘26/27/28 time period).
Dollar Valuation - Bottom or Further to Fall?
Dollar “The USD has now lost almost 11% of its value this year”…
“Dollar went on a wild ride after Trump won election just as gold tanked. Moves ahead of it too. If you look, we’re only down ~3% after round tripping Trump trade.
I feel it’s nearing a bottom. It looks worse since it peaked around Jan 1 so to start the year it’s bad. But Q4 of 2022 saw a similar move.”
Scott Choppin Note: There is some consensus that we may be at the bottom of the dollar’s value, but we can also anticipate further devaluation if/when the Fed cuts rates. We appear at or nearing the Fed’s target inflation rate.
US Manufacturing Signal - Flat and Low
“The ISM Manufacturing PMI came at 49 points in June, marking the 4th straight month of contraction.
The manufacturing sector has now contracted in 29 out of the last 31 months.
New orders have shrunk for 5 months STRAIGHT.”
Do You Know a Land Owner, Business Owner, or Developer That is Stuck on Their Development Project?
We Can Help Them Succeed
We have expanded our team for our project management and development services offer, to help us serve more clients in the future.
Our project services clients include:
non-developers
new developers
folks who have gotten stuck in their development and planning process.
Some of our recent work includes helping the San Pedro Fish Market with their Phase 2 project at the LA Harbor in San Pedro, including design management and entitlements. We are also the real estate advisor on their redevelopment of a brand new location on the historic Fisherman's Wharf in Monterey, and we completed a project for them at the former Joe's Crab Shack in Long Beach at Alamitos Bay (see flyer below)
We are working on numerous housing deals as an advisor as well.
Send me an email if we can be of help on your project: choppin@urbanpacific.com
