The Small Balance Intersection Update - August 2, 2024

Quote of The Day: "Success is never owned; it is only rented – and the rent is due every day." - Anonymous

Did You Know That Today is National Ice Cream Sandwich Day?

Fact Of The Day: On August 2, 1776, members of the Continental Congress began signing the United States Declaration of Independence.

Outlook Avenue

U.S. Credit Outlook Signals Weaker 2H24 Environment Amid Rising Negative Outlooks

Fitch Ratings forecasts a modestly weaker U.S. credit environment in the second half of 2024, despite steady consumer spending. The report highlights a softening in housing demand due to persistently high home prices, although affordability may improve with expected interest rate cuts. Fitch anticipates two rate reductions in September and December, projecting a "soft landing" for the economy with moderated inflation, low unemployment, and a slightly reduced GDP growth rate of 2.1% for 2024. Despite the weaker credit environment, most ratings across sectors remain stable, with a slight edge of Positive Outlooks over Negative Outlooks, though the gap is narrowing.

Delinquencies and defaults are expected to rise, particularly for rate-sensitive borrowers like commercial mortgage-backed securities (CMBS), high-yield bonds, leveraged loans, and subprime consumers. CMBS delinquencies are projected to increase across all major commercial real estate sectors due to heightened maturity defaults linked to elevated interest rates. Fitch has revised its high-yield default rate projection to 5.0%-5.5% for 2024, up from an earlier estimate of 3.5%-4%, due to pressure on liquidity for highly levered issuers.

The outlook for North American sectors is split between neutral and deteriorating.

Read the full report here.

Decline Avenue

July 2024 Independent Landlord Rental Performance Report: Financial Summary

In July 2024, on-time rental payments in independently operated units decreased for the second consecutive month, reaching 85.0%. This marks a 71 basis point drop from the previous month and a 139 basis point decrease compared to the same period in 2023. Single-family rentals led in on-time payments at 86.1%, while multifamily properties lagged behind at 83.8%. Western states outperformed the national average, with Utah leading at 91.4%, followed by Idaho, Nevada, Oregon, and California. The full-payment rate, which includes late payments, also declined to 94.1%, down 32 basis points from June 2024. Compared to a year ago, the full-payment rate has decreased by 226 basis points, highlighting a trend of weakening collection performance. This decline is part of a broader pattern, with on-time payment rates falling in 12 out of the last 15 months. Despite these declines, the current full-payment rate is still 374 basis points higher than the low recorded in September 2020. The overall data suggests a gradual erosion in rental payment reliability across different property types and regions.

This report is presented by Chandan Economics in collaboration with RentRedi.

Read the full report here.

Caution: Hidden Costs Ahead

Shifting Demographics and Rising Costs Shape U.S. Moving Trends in 2024

In Q2 2024, inter-city moves in the U.S. fell by 4% year-over-year (YoY), an improvement from the 15% YoY decline seen in the same period in 2023. However, those who are moving are more likely to be Gen Z or lower-income households, reflecting a shift towards moves driven by necessity rather than choice. The rising "hidden" costs of homeownership, such as increased property taxes and insurance premiums, particularly in the Sun Belt region, are discouraging relocations among higher-income and older households. Affordable rent markets, mostly in the South and Midwest, are attracting these younger and lower-income movers. This demographic shift is impacting consumer spending on moving-related categories, such as furniture and appliances, which have seen declines. Overall, the economic boost from household moves is currently subdued, but a potential rebound in moves could stimulate related spending in the future.

Read the Full Bank Of America Institute Article Here:

Source

Rent Growth Avenue

U.S. Multifamily Market Shows Resilience Amid Economic Shifts

The Matrix Multifamily National Report for July 2024 presents a multifaceted view of the U.S. rental market. Nationally, advertised rents saw a modest year-over-year increase of 0.8%, with the average rent reaching $1,743. The report highlights a robust demand, fueled by a strong economy with a 2.8% GDP growth in Q2 and 1.3 million jobs added in 2024’s first half. Inflation is decreasing, with the CPI growth rate slowing to 3.0% in June, potentially leading to future interest rate cuts. National occupancy rates held steady at 94.6%, though some metros like Las Vegas and the Twin Cities experienced slight increases.

Single-family rental properties continued their strong performance in July, with advertised rents rising $5 nationally to a record-high $2,171. The year-over-year growth rate moderated again, declining 10 basis points to 1.0%. Occupancy rates fell 10 basis points to 95.3% in June.

The report also discusses policy proposals aimed at addressing housing affordability, including President Biden's rent control plan, which could impact future market dynamics. Despite encouraging signs, the report warns of continued challenges from high levels of new deliveries expected over the next 15 to 18 months.

For a detailed analysis, visit the Yardi Matrix report.