Central Texas Roundup | JLL Multifamily | 8/19/24

Summary

• Cooling July inflation sets stage for Fed’s September rate cut
• Uncertainty remains around housing market recovery
• Multifamily starts drop 20% from start of 2023
• Affordable housing underway in Elgin amid housing boom
• $1 billion Leander Springs mixed-use project faces delays
• New downtown San Antonio ballpark to anchor billion-dollar development
• San Antonio immediately backfills JetBlue’s Boston flights with Delta

National and State News

Cooling July Inflation Sets Stage for Fed’s September Rate Cut (WSJ)

• Why it matters: The conversation has changed from “When will the Fed cut rates?” to “By how much will the Fed cut rates in September?”
• July's inflation figures, showing a continued slowdown, have reinforced the argument for the Federal Reserve to reduce interest rates at its upcoming meeting.
• According to the Labor Department, the consumer-price index increased by 2.9% compared to the previous year, marking the lowest reading since 2021 and slightly below economists' predictions of 3%. The core inflation, which excludes volatile food and energy prices, also hit a three-year low at 3.2%.
• Despite these numbers, market reactions were subdued, indicating that investors have shifted their concerns from inflation to the job market. While major stock indexes experienced marginal gains, Treasury yields initially rose but later declined.
• The rationale for a rate cut lies in both improved inflation figures and signs of potential weakness in the labor market in the coming months. In July, the unemployment rate rose to 4.3% from 3.7% at the start of the year, indicating sluggish hiring despite low layoffs. Consequently, the debate at the Fed's September meeting will revolve around whether to implement a traditional quarter-point rate cut or consider a larger half-point reduction.

Why Falling Mortgage Rates Aren’t a Quick Fix for Frustrated Homebuyers (WSJ)

• Why it matters: Record home prices and renewed fears of a recession complicate hopes for housing market recovery.
• Despite experiencing a recent decrease, it is highly unlikely that mortgage rates will return to the levels seen prior to the Federal Reserve's interest rate hikes in early 2022.
• Last week, the average rate for a standard 30-year fixed mortgage experienced a significant decline, falling below 6.5%. This drop was the most substantial of the year and more than a percentage point lower than its peak of nearly 8% last year.
• Fannie Mae and Freddie Mac's recent projections indicate that mortgage rates will decrease to below 6.5% by the end of next year. Meanwhile, the Mortgage Bankers Association predicts a slightly further drop to around 6%.
• The gap between mortgage rates and the yield on the 10-year treasury note has started to narrow, although it remains higher than historic norms. Should this trend continue, it could lead to lower rates for homeowners.

Multifamily Construction Starts Hit Lowest Level Since 2011 (CoStar)

• Why it matters: Units under construction dropped from their 50-year high of 1.17 million at the start of 2023 to 950,000 units 12 months later, a 20% decrease – this forecasts strong absorption and rent growth rates for 2025 and 2026.
• After reaching a peak in 2022, developers scaled back construction in 2023 due to reduced commercial real estate lending by banks. Presently, multifamily developers face a new challenge as many equity capital sources are hesitant to participate, concerned that the returns from existing apartment purchases do not sufficiently justify the risks associated with new ground-up development.
• Projections indicate that the number of completed apartments in 2025 is expected to decline by 38% compared to 2024's total, and further decrease by 19% in 2026 to reach 287,000 units.
• If the current level of multifamily demand can be sustained over the next two years, coupled with the lower projected supply, the market will be well-positioned to absorb the surplus units and restore multifamily vacancy and rent growth to pre-pandemic levels.

Austin News

Elgin to get affordable apartment project as city braces for housing boom (ABJ)

• Why it matters: Elgin, a small town just east of Austin, is preemptively tackling the affordability crisis that continues to grow in Austin.
• On August 13, the Elgin City Council approved a development agreement for The Katy at Elgin, a new multifamily project. If it comes to fruition, this development would address the critical need for affordable housing in a city that is expected to see the construction of thousands of homes in the coming years.
• The plans for the project outline an apartment building spanning approximately 147,000 square feet. It is designed to include a mix of 150 studio, one-bedroom, and two-bedroom apartments, ranging in size from 588 to 1,222 square feet, according to the project site plan.
• While specific details regarding the affordability aspect of the project were not provided in the development agreement, it states that all 150 units will be designated as affordable housing.

Leander Springs Mixed-Use Project Faces Delays and Financial Challenges (ABJ)

• Why it matters: Billion dollar mixed-use project faces major delays in Leander.
• iLand is facing significant financial challenges, as more than a dozen liens totaling around $3 million have been filed against them for unpaid work on Leander Springs and another project. However, only $800,000 of these debts have been settled.
• The city terminated the development agreement in early 2024 due to unfulfilled construction requirements, but they remain willing to engage in negotiations for a new proposal. Developers attribute some of the challenges to delays in obtaining permits.
• Leander Mayor Christine DeLisle has raised concerns about the project's water usage and overall feasibility, indicating that the city's priorities have shifted since the original agreement. The project is currently undergoing review, and developers are actively working to resolve the lingering issues related to finance and permitting.

San Antonio News

New downtown ballpark to anchor billion-dollar development (SABJ)

• Why it matters: New baseball stadium is attracting a billion of private investment to downtown San Antonio.
• The city of San Antonio and Bexar County, in collaboration with Missions ownership, are actively pursuing the development of a downtown ballpark with an estimated cost of $160 million. This project would serve as the keystone for a more extensive mixed-use redevelopment zone in downtown, which is projected to attract approximately a billion dollars in private investment centered around the stadium.
• City officials anticipate that the private investment associated with the ballpark plan would encompass a diverse range of sectors such as hospitality, residential, and other forms of economic development. This new development would generate additional tax revenue that would contribute to the existing Houston Street Tax Increment Reinvestment Zone, offering a funding source for the construction of an approximately 8,000-seat stadium located in northwest downtown.
• Assuming the plan receives approval, city officials expect the completion of the new ballpark to coincide with the 2028 season. The private investment would be implemented in four phases, with the first two representing approximately $575 million and targeted for completion by 2029, as outlined by city officials. The remaining two phases of development are projected to conclude by 2031.

Delta could turn JetBlue's local exit into a big win (SABJ)

• Why it matters: San Antonio immediately backfilled JetBlue’s Boston flights with Delta, maintaining connectivity between the two life science hubs.
• Following an extended period of negotiations with JetBlue in the past, the airline commenced operations from San Antonio International Airport (SAT) to Boston Logan International Airport in 2021. However, JetBlue's final flights from San Antonio are scheduled for October 26, prompting local stakeholders to take action.
• Within a matter of days, the airport leadership was able to reach an agreement with Delta Air Lines to enhance its presence in San Antonio by introducing nonstop flights to Boston starting from November 11.
• Jesus Saenz, the director of airports for the San Antonio Aviation Department, stated that Delta's performance at SAT has been impressive, with a remarkable 20% increase in total departing seats compared to pre-pandemic levels.
• According to Jenna Saucedo, the President and CEO of greater:SATX, establishing connectivity with Boston is crucial for San Antonio businesses, especially those in the information technology, financial services, and life sciences sectors. She highlighted that San Antonio and Boston are among the nation's largest hubs for life sciences.