Moody's Talks - Inside Economics - Welcoming Marisa and What’s Next for Multifamily

Episode Date: October 28, 2022

Mark Obrinsky, Chief Economist for the National Multifamily Housing Council, joins the podcast and gives a detailed housing outlook. Topics include rent growth, housing shortage, and the impact of inflation on the housing market. Mark and Cris also welcome Marisa DiNatale as the new co-host of Inside Economics.Full episode transcriptFollow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight  Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two co-hosts, and we have a new co-host, Chris. Chris DeRees, of course, is the deputy chief economist. And we're welcoming Marissa, Dean and Talley as our new co-host. Welcome, Marissa. Thanks, Mark. And, you know, I did have some intrepidation about having to be a co-host. I'm just being honest here. And, you know, my problem, frankly, Mercer's your salty language. I was a little nervous about it. Right, Chris? Oh, my. You know, it's hard to keep her. It was a one-time incident.

One time. We'll see. And it was hardly that salty. It was hardly that salty. Thank you, Chris. Well, you're very forgiving, Chris. I mean, yeah. But I'm just excited that she's our co-host.

It's been a long time coming. The only thing that saved it for me was, you know, we can edit this. We generally don't. We generally don't edit, but every once in a while, so I thought we could do that. But Marissa promised me she'd keep it, keep it light. Keep it clean. Keep it clean. Yeah.

I'm very excited to be here. So, thank you. It'll be fun. And you're on the West Coast. So I think we do, we need, we're recording this a little early for you, aren't we? Or it's just 730. It's fine. It's fine.

Okay. Okay. She keeps East Coast high. Yeah. So, you know, I'm used to getting the other day at a 430 meeting my time. Okay. So this is late in the afternoon. No big deal for you.

Yeah, no big deal. No big deal. Okay. Very good. And I should say it's wonderful to have you. I mean, you keep the trains on the tracks here. You manage the entire global forecast process, which has gotten pretty complex. I'd have to say over the years. We've got folks all over the planet. And we're doing all kinds of forecasting work now. I think this week we're doing the NGFS scenarios. Is that right? Climate change scenarios. That's right. Right. So that's the national greening of the financial system. And these are the folks that put together the scenarios that many financial institutions around the globe are using. And we take what they do and we expand what they provide to a

our broader models and provide all of the variables in our models to our clients. And that's a process, isn't it? Yeah, one that fortunately I don't have to manage someone else does. But a whole team of other people in our climate group do it. But yeah, our whole research department is involved over 40, 50 people. And it is quite the challenge. It's brand new for us, right? It's brand new for pretty much everybody over the past year or two.

So we're still figuring out the best way to do it and provide the most value to our clients. But yeah, we have that. We have many forecasts ongoing, as you know, at the same time simultaneously every month. So it's a lot to juggle. And a lot of kind of idiosyncratic scenarios, like I noticed we're running scenarios, China, Taiwan, U.S. conflict scenarios. Right, right. Brazil, Bolsonaro, Lula, well, I'm not sure how we're describing it, but a mess in Brazil scenario, you know, kind of thing.

So lots of different scenarios. Yeah. We have a guest. Mark Obrinsky. Mark is the chief economist at the National Multi-Housing. Is it council? It's the council, right? National multi-housing council.

National Multi-Family Housing Council. Oh, National Multi-Family Housing Council, N-M-H-C. How do you, that's a mouthful. What do you say, NMHC or how do you describe what? We wish we had a different name. But changing names is even harder than sticking with National Multifamily Housing Council. So amongst ourselves, we refer to it as the council. Oh, okay.

And that makes a lot easier. Yeah. That makes a lot better. Yeah. And you are the chief economist of the council. I am indeed. Yeah. And we have known each other for many years, I dare say decades, I think.

It's a scary thought, Mark. I don't remember exactly when we met, but I think it's pretty close to the point at which I'm equidistant. That point is equidistant from my birth date and to date. day. That's how long ago it was. I know. And I'm sure you came to an MHC from Fannie, right? Or was there some other? That's correct. But walk it back a step. I might have even met you in a job prior to that. I was the deputy chief economist at the old U.S. League of Savings Institutions. Oh, that's right. The former trade association for the saving a loan industry before that industry and that trade association kind of faded away, let's say.

What years were those when you were? I was there from 1984 through 1989. Oh, they were action-packed years. Those were action. I got to see a lot then, yes. Right. But that was actually, that was my introduction to housing economics. I had done nothing in the way of housing prior to that.

It got me into housing finance and the housing industry. And from there, I did move to Fannie Mae where I'm there for about 10, 10 and a half years. And did you know Chris when you were at Fannie? Did you guys overlap? No, we did not overlap. I'm too old to have overlapped with him at Fannie. So, Chris, you came to Fannie after Mark had already left. That's right.

Yeah, I left in 2000. In 2000. Oh, so the SNL crisis kind of came. came to a fevered pitch, what, early 90s, wasn't it? So did you kind of left right before it all fell apart? Or was it falling apart by then? Late 80s, actually. So there's actually a theme here. I kind of hate to bring it up, but before I was at the U.S. League of Savings Institutions, I was teaching at a mid-sized university, as we like to call it, Bradley University in Peoria, Illinois. I arrived there in 1979.

People told me, Peoria is immune to cycles because we have Caterpillar Tractor here. Ah, right. Five years later, bumper sicker said, last one to leave, please turn the lights out. Because world economic downturn and Japanese competition crashed Caterpillar 2. So first I crashed Peoria and then left to Saving a Loan industry. Then that industry fell apart. I moved to Fannie Mae. I got out of Fannie Mae before that was taken over by the government.

And now I'm with the multifamily industry. And we've had a good 22 and a half year run for me. So maybe my bad luck is finally ended. Yeah, that's an ignominious kind of track record there. Yeah. And I said it anyway. I'm just trying to be honest. Yeah.

Well, I've got something similar for. for you. Let me, you know, we play the statistics game. So we're going to play, this isn't the real game, but I'm going to play a little bit of a game, kind of in the spirit of your personal history. And let me ask, what do these three years have in common? 1929, 1980, and 2008. You guys are economists. I know what the answer is, but. Oh, you do know what the answer is? I think so. Go ahead, far away. I mean, aside from recessions, that the Phillies were in the World Series. They won the World Series.

Won the World Series? Yeah. In each of those, in fact, those are the three years that the Phillies or the Athletics, which preceded the Phillies, won the World Series. 1929, 1980, 2009. And those are also years when, when what? Of course, yes. The world fell apart. Yeah.

Yeah. The economy fell apart. So are you rooting for the Phillies then or no? I am. I am rooting for the Phillies, but I'm buckling in at the same time. Yeah. Yeah, because if they win this World Series, history, you know, I don't know, causation, correlation, who knows. But that's something to keep in mind.

So the Phillies have a better track record than you, Mark, in terms of predicting. And that's a sad state of affairs. I say this as someone who lived in Philadelphia for a good eight years and certainly followed and loved the Phillies back then. Well, who's your pick? Who's your pick? Well, I don't forecast. I'm only forecast stuff I know. I'm certainly not going to forecast stuff I don't know.

Oh, that's how we differ. That's indeed. We'll forecast anything. So what are you forecasting, Chris? Do I have an option? You know? Yeah, you have no option. There's no option.

Yeah, no option. Yeah, no option. All right. Okay. Yeah. Well, it's going to be an action pack weekend, Mark, here in Philadelphia. We've got that, this is Friday. Got the first game of the World Series tonight.

The second game is Saturday night. Of course, we love our Eagles. They're 6 and 0, the only undefeated team in the NFL. They play Sunday. And I think there's two more World Series games, Monday and Tuesday. So this is going to, this is going to be very exhausting for, you know, watching all these games, because these baseball games go on forever. But anyway, well, it's good to have you.

And we will definitely come back to talk about the multifamily housing market, a lot going on there, and really critical to the broader economy, you know, given the housing shortage and also given inflation, because rent growth is a big part of what's going on with regard to inflation. I want to hear your views on that. But before we go there, let's talk about this past week and all the economic data. This is a plethora of data, a cornucopia, a feast of economic data. And maybe I'll turn to you, Marissa, and just ask, we're, you know, given all those things that came out, GDP, a lot of housing numbers. We got the employment cost index, read on wages, durable, I mean, trade. I mean, it was like... Income.

E.C. deflating. Lots of housing data. I know we got a ton. Which indicator would you start with? Well, let's talk about the ECI, which is the employment cost index. Interesting. You're going to the ECA for... Chris, would you have thought that?

Would you have said ECR? Oh, yeah. That's front. You would have gone to the employment cost index. Mark, did you've gone with the ECI first? No. So what would you go on with first? That's Fed Pals.

The most important one. No, no, clearly. Clearly, the quarterly survey of apartment market conditions. Exactly. I forgot about that one. Nice. Nicely done. How can I forget that one?

Was that released today, Mark? It was released today, as a matter of fact. Oh, okay. What a great setup, Chris, huh? Isn't this guy good? Yeah. Well, we're definitely got to hear about that survey. In fact, I saw you gave me some advanced warning on that, and there's a lot going on

there that we need to talk about. Okay, well, let's talk about the ECI, the employment cost index. Fire away, Marissa. It came out this morning. So this is the quarterly survey that shows wage growth. And this is the Fed's preferred measure of wage growth. So this is really what they're keyed in on when they're looking at whether or not inflation is bleeding into wages and we're creating a wage price spiral. So if you look quarter over quarter, data for the third quarter came out this morning. Total compensation costs for all civilian workers rose 1.2% quarter over quarter.

in Q3. Year over year, that came out to 5%. These are both down, whether you look quarter over quarter, year over year, a tenth of a percentage point. So year over year growth in Q2 is 5.1. It ticked down a little bit to 5% in the third quarter. Same with the quarter over quarter number down a tenth of a percentage point. So it moved in the right direction, right? It's not a huge move. It kind of budged down a little bit. but it is cooling. If you take it together with some other wage measures, another one we look at is the Atlanta Fed wage tracker,

that also has been cooling the past couple months. It shows much stronger wage growth than the ECI overall, but it is also moving in the right direction. Average hourly earnings, although I don't really like that measure, that's also cooled in the past couple of months. So it's moving in the right direction. it's not huge. I think in terms of when I look through the whole report, it actually looks a little bit more hopeful than those top line numbers would indicate. So, for example, if you just look at

workers in the private sector and you look at total compensation quarter over quarter, that went from 1.5% in the second quarter to 1.1% in Q3. And wage growth slowed by about the same amount if you just take out, you know, if you just look at wages and you take out benefits. And then when I look across industries and occupations, there is kind of some broad-based flowdowns across most industries and occupations, too. We still see really strong wage growth in the service sector, led by leisure hospitality and retail trade. Those are, those have very strong wage growth. Construction wage growth is still really strong, but given that's a very interest rate sensitive industry, I would expect that'll cool too. So it's good. It was kind of in line

with expectations, moving in the right direction, but it's not in, you know, it's not, not anything to be dancing in the streets about in terms of signaling much lower inflation. So of all the indicators that came out, you picked ECI wage growth because it, it's a read on what matters in terms of inflation. And right now, inflation, is kind of obviously at the top of the list of concerns and is driving what the Federal Reserve is doing in terms of interest rate. So we need wage growth to moderate, to be consistent with a moderation and overall inflation and get the Fed ending its rate hike cycle and potentially, hopefully avoiding a recession.

So that's why you pick this indicator. It's so central to all of what's going on here with inflation and monetary policy. That's right. And you're saying, oh, it was okay. I guess one thing is we've been getting all these ugly numbers and the fact that it wasn't ugly felt to me pretty good, right? I mean, I go, oh, thank goodness. Right. It wasn't a bad surprise.

It wasn't worse. Yeah. It wasn't worse. Yeah. And then there are some things in the bowels of the report that give you a sense that things, wage growth might be rolling over starting to moderate. I think so. I agree. I would agree with that characterization. Yeah. My favorite measure in the E.C.I, and I think this gets to the kind of the, gives you the best window into underlying wage dynamics is wages and salaries for private industry workers excluding incentive pay, one-off pay, bonuses, that kind of thing. I know that's a mouthful, but that kind of gives you a sense of the core underlying wage growth. And that does feel like it's moving in the right direction. It peaked on a quarterly, basis the increase in the first quarter of this year, moderated in the second and moderated again in the third, still elevated over 5%. But that gave me some solace that, you know,

we're headed in the right direction. Does that sound about right? Okay. Yeah. Hey, Chris, anything you want to add to that conversation around the ECI? Does that, is that consistent with your, uh, yeah. I think that's about right. And I don't think it changes the Fed's stance or policy going forward. It's kind of in line with expectations. right. So it doesn't cause them to accelerate or back off on the rate hikes. Yeah, it's to script. Right. Right. And the script is we're going to raise rates, the Fed's going to raise rates three quarter of point when they meet in a week, another half point in December, probably another quarter point in January. I don't know where markets are now, but that feels like

at that point they're going to pause and take a look around. Is that what markets were thinking at this point. Yeah, I think that's roughly right. I think there might be another quarter point in there. Yeah. On the somewhere. After today, we'll take a look and see what it says. Yeah.

We'll see. Okay. Okay. So, Chris, of all the economic data that came out, we covered the ECI, which one would you pick the highlight? Well, I don't want to give it my stat away for a stats game. But you can, I would say second to the ECI would be the PCE, uh, inflation measure this in terms of understanding

Fed policy, right? That's the key gauge that they use. And that kind of came in a query and descriptive. PCE being the consumer expenditure deflator. Correct, correct. That came out this morning as well. And what did it show? What's that? What did it show?

0.3%. Again, kind of in line with what we had in August. This 0.3% is the month over month for September. year over year, which is probably what people are most focused on, 6.2% on the headline and then 5.1% on the core. That was a bit up. But again, in line with expectations. For that reason, I don't see the Fed changing course. Still too high, right? Yeah, well, above target. That should be 2%. That's their target. That's the core excluding food and energy, consumer expenditure deflater. That's their benchmark. That's their benchmark. Mark inflation measure, that's, they target that to be two. We're at five.

So, five point one. So actually going in the wrong direction over the last month. Yeah, but you know, not, not terribly. Annualized, it's kind of five is or something. Yeah. Yeah. Right. Okay.

Um, uh, Mark, do you want to talk about the, uh, diffusion index, the survey you put together now? Is that your favorite indicator, uh, or all those, I mean, I know that's a little self-servant. if you pick that one. It feels a little self-serving. I mean, is that actually the best, the most important indicator that came out in your mind this week? I can't believe you would think that of me, Mark, really. Self-serving? I don't know. Yeah, good point. That was harsh. Yeah, that was harsh. Yeah, that was harsh. Yeah. Well, let's put it this way. Let's put it in context. And I think we have to talk a little bit about the GDP numbers. Yeah. Kind of ignore them.

I was waiting for that. And so let's, let's do that. I'm, I think my view, similar to what I think yours is, Mark, the third quarter data showed what most of us, maybe all of us knew, is that we were not, in fact, in recession, at least by September 30th, economy was still moving forward. Consumption numbers, you know, solid, not up, but solid. But a couple of other signs in that report, you know, net exports help push the number up. And I don't think anyone thinks that's going to be contributing a lot to GDP going forward. With the value of the dollar being so strong, this is going to probably turn around and go the other way at some point. I don't know if it's next quarter or current quarter, next quarter, whenever.

We did see residential investment decline, fairly hefty rate. I think that's totally to be expected with the interest rate hikes we've already seen from the Fed. But expect that to continue going forward. So there are some signs of weakness to come in the GDP figures. And the question is, oh, I guess the other thing to say is, so the overall GDP number being up, you know, let's call it two and a half percent around, it may suggest that productivity numbers were not quite as bad as one might have thought prior to that, which is good for the wage in relation to the wage number.

So that's the other point to make about that. But having said all that, there's weakness coming. And I'm among those who think that the Fed needs to be mighty careful not to throw in all this monetary tightening, not see enough of an impact on the economy, and then just keep tightening until it does see the impact. For as long as macro has been taught, I think, the famous phrase is, This monetary policy operates with long and variable lags. If I know this, obviously the Fed knows this. They've done a lot of tightening already.

You're probably right that the forecast for them adding another one and a half percentage points of tightening before pausing, maybe what they're going to do. But I'm not so sure that's what they ought to do. Now, even in the context of that wage growth and that high inflation and it feels like inflation expectations are back pretty close to where they'd want to see them, but feels fragile. Despite all that, you would, if you were on the FMC, vote to, what, pause after this next rate hike? You know, I'm not going to say what I would do, because I haven't spent enough time looking

at as much stuff as they look at. So I'm just saying, there's a danger in overtightening just as there is an undertightening. They do have a dual mandate, supposedly, although somehow. half of that mandate tends to get lost when inflation becomes a concern. And causing a recession to bring inflation down, particularly in a world where, in my view, inflation is, excuse me, inflation is not primarily a function of too much demand at this point. It's more a function of supply issues. I'd just be a little wary of because when that's the case, Yeah, you can still make inflation go down by raising interest rates, but you really have to

shove them up pretty high and really knock demand down. You pretty much have to have a recession for that to work. Not so sure that's what we want right now. I think that I would think they have a little more time to be careful than to overdo it right now and tighten too much. That's my, that's my view. Yeah, no. I mean, I'm very sympathetic to what you just said. the pushback, and I think it's not an unreasonable one, two things. One, to get to, they have a dual mandate, full employment and inflation that's low and stable. To get to full employment, though, a necessary condition is low and stable inflation. So you have to accomplish that. Otherwise, you can't get the latter, you know, full employment, at least not in a consistent way going forward.

And the second pushback is, yeah, the inflation is largely supply driven, but at this point, it's metastasized and, you know, infected the wage price, inflation expectations, wage price dynamics, and the only way to ring that out is, you know, a tight monetary policy. And that's, you know, even if you believe it was supply side driven at this point, that doesn't, that's almost not relevant because it's in the wage structure and we got to get that out. And that means a weaker economy. So that I hear you, but I can, I understand the other side of it too. But it's, but I guess your broader point, and I totally agree, there's two-sided risks here, right? And that's what you're saying. It feels like what you're saying. Right. Monetary policy. Do you do an explicit forecast for the economy? I mean, like, do you have like a GDP forecast for 2023?

No, we truly don't do forecasts. For lots of reasons, don't, first of all, because we're not very good at them. To do a real forecast, a real macro forecast, you really need to spend full time with smart people and look at the data carefully. And it's, as you've mentioned, implicitly, if not explicitly, you've got to look at the whole world. You can't even just look at the U.S. What's the point of having some other rump group of four researchers produce another bad macro forecast? Like, why would we do that? I'd welcome your forecast any day, Mark. No, no, no. I'm sure you. You guys are out there. Why would we want to duplicate that? But our general view, this is research at NMAC is we can't do everything. Let's not do things that other people are doing well.

Let's do things other people aren't doing and that are important to our industry. So our industry doesn't need another forecast. They particularly don't need another interest rate forecast. Yeah, well, let's talk about tough thing to forecast. There's one forecast I'm going to ask you for, though, at the end. at the end. And this has kind of been our way of gauging where people's minds are on the economy. What do you think the probability of recession is over the next year? So I'm going to press you a little bit on that, but not not now. Maybe towards the end of the conversation, we'll come back

to that and see if we can't engage you on that one. But, you know, my sense is looking at the data, by the way, my probability recession actually came in this past week, just as a teaser. This does make sense. This past week, the data, it was about as good as it possibly could get, you know, from, from, it could have been better, but it was pretty good. I mean, the GDP number positive, but clearly it's going to slow, you know, the got juice by temporary. But that's a good thing. That's exactly what we need. We need GDP to, it's been flat since the end of last year, gone nowhere.

And that's exactly where we want it, right? Because if you want the economy to cool off without going into recession, that feels like I couldn't draw the line any better than that. And it feels like that's the kind of growth, no growth we're going to get going forward here, given the internals of the GDP number. The wage growth, that feels like that's rolling over, peaking the inflation numbers. You know, that was descript. And that feels like that's peaking and going to roll over. I don't know. I just, I came away thinking. And then, of course, all the financial market response has been pretty constructive, right? I mean, got 10 year yields at 4% but the stock

market's hanging in tough and, you know, credit spreads or not, they're consistent with the non-recession scenario. I mean, I feel better about the economy today in its prospects than I did a week ago. I'm sticking with Goldilocks. All right. Yeah, just, I don't know. But anyway, come back to that. All depends on the Phillies, then. I think a lot depends on those Phillies. Yeah, you make a good point. Okay, so let's do this.

Let's talk about the multifamily market in more detail, and then we'll come back and play the statistics game because we've already digested a lot of statistics. So let's save the game for later in the conversation in the multifamily market. And here, Mark, I think this is a good place to bring in. the survey, the quarterly survey, because I think that says it all. Do you want to describe the results there and what you think it means? Yeah, sure. Let me just quickly describe for those not familiar with it what the survey is. Every quarter we send out to most of our members four questions. And we try to get quick responses and then turn the data around real quickly. So it's not detailed data. It's just

sort of quick, qualitative answers to questions and as you say, it's a diffusion type index. So we asked, first of all, a market tightness question. So compared with three months ago, are the markets you are familiar with or operate in showing higher rents and higher occupancies, lower rents and lower occupancies are about the same? And that's our, we could produce an index number like most of these things. Fifty means it's essentially unchanged, above 50, things are getting stronger or growing than below 50. It's the other way around. We had had, let's, let me take a quick look here, one, two, three, four, five, six quarters

where the market tightness index was above 50, not always much above 50, but at least a little bit above 50, indicating that, you know, that we're seeing tighter markets on balance in most places. And then in the data release this morning, the number fell to 20. So that's well below 50, indicating that on a broad array of markets, things are slowing. We're seeing slower rent growth and or higher vacancy rates. That was a pretty sharp turnaround. And again, just on interpretation, I know economists understand how to interpret this,

but not everyone follows this in detail. A low number doesn't mean that rents dropped a lot or that vacancy rates went up a lot. It means that they went up across a broad section of markets. Right. So they may have only dropped a little bit, but it's the direction that we're looking at. So the direction on a wide basis.

So can I ask on that? Just the technical question. So what if rent growth slows, that would be consistent with a easing, in market tightness, would it not? Or does it actually have to decline? Does rents actually have to decline for people to say? The way we ask the question, we're trying to get them to tell us not about rent growth,

but about rents. Oh, okay. Okay. But in fact, but in fact, you know, people answer the way they want to answer. So I think many people answer as you would, Mark, which is that if we had been seeing year-over-year growth rates, of 8% in rents and now it's 4%. They'll probably say compared with three months ago, that's lower. Right.

The trickiest question is, what if rents are going up and vacancy rates are also going up, then what do they say? But that doesn't happen so often that it's a problem. Right. In the 20, just to articulate it, when you say diffusion index, this is a number of, the percentage of folks saying to respondents, the saying that conditions are tightening less, or easing, I should say, less the percent that say they're tightening. Yes, and we do show those numbers, too. You can find them on our website. You can get the actual

percentage of people's answers. And so on that question, we had 66% of respondents say that conditions were looser than three months ago, and five percent who said they were tighter. So you take that difference, which is, let's call it 60 percent, divide by two. 30 percent and subtract that from 50 and that gets you your 20. Right. And let me know if I'd said that too fast. I think I got it. Did you guys get it?

Yeah. Okay. So two questions. One, it's on the market tightness question, it's 20 percent or percentage. It's just a 20. It's just an index number. 20. It's an index number.

20. When's the last time it was that low? And abstracting from, I'm sure it was about that low in the teeth of the pandemic shutdowns, I'm sure it got that low. In July 2020, it was 19. 19. Okay. And then what do you have to go all the way back to the great financial crisis to find something as low as that?

Well, April of 2020, it was 12. Okay. Okay. So then, yes. Before that, you have to get back to 2009, 2008. Yeah, I think the lowest number we ever showed, though, was in 2001. It fell to four. Was that like 9-11?

or something? It was, yes, it was the fourth quarter of 2001. It was 9-11. 9-11. Yeah, that makes sense. And the second question, what was the high point? So if I go back, my senses a year ago, probably, the market was very tight. And what was the reading then?

Well, a year ago, so we had 79, 77, 79, 79 in the first three quarters of 2021. Yeah. And so again, that's what that's indicating is that a broader array of markets are showing tightening across three straight quarters. Right. You're seeing a broad level of tightening of the physical space market for apartments. Right. Okay.

So I go back a year ago, it was tight. The market was tight. Market was tightening. Tightening. And I would also say, wouldn't you? You say tight, based on other data. I would say that. Based on this survey.

Yeah. Yes, right. Exactly. You would say it was tight. Yes. Rents were rising rapidly, double digit year over year growth, accelerating, vacancy rates, low and falling, maybe not record low, but pretty close. Would that be a fair characterization? Yes, I would.

Yeah. And broad-based, I mean, across much of the country. It was everywhere, rent-crossed. And it feels like it's fallen off a cliff. from a year ago, certainly in the last quarter, it feels like a bit off a cliff, right? Is that fair to characterize it? I think we don't know that for sure yet. I think what we're seeing.

So if you look at the month-to-month rent increases, the peak was actually probably sometime last summer, maybe late last summer, and they've been moderating since then By some data, the September number month to month. So September over August, 2022 was flat and maybe down slightly in absolute terms. The peak was summer of 2021. The peak in monthly rent growth. Yeah, was summer 2021. 2020, yes. Yeah. 2020. So the rate of growth has been easing off a little bit, and it may, it seems to be flat and may be declining a bit in September with the peptide. also say that there is some seasonality to the rent numbers, but we don't see seasonally adjusted

numbers produced typically. These are mostly by private data sources. And so you have to sort of make a qualitative adjustment in your head and say it might be just seasonality right now. Let's see several months worth before we draw too many conclusions yet. Now, to the listener, let me just say the reason I'm pressing so hard here is because this is really critical to understanding what it means for future inflation. And we're going to come back to that in just a minute. But to nail this down, this kind of pattern that we're observing is really, really important to inflation, the cost of housing and ultimately inflation, because the cost of housing

is such a key component of inflation. That's why I'm really pressing here. So my characterization of what you said is market was really tight or tightening. But if I look at the broad set of data, it feels like it was really tight. and rank growth on a month-a-month basis, sequential basis, was peaking back in the summer of 2021. And now here we are a little over a year later. Things are easing very quickly. The market is loosening.

It's not loose, I'd say, but it's loosening because vacancy rates are still low. And rank growth is now, feels like, if not declining, pretty close to declining. Is that fair the way I just described it? I think that's fair, yeah. Okay, okay, very good. Well, one quick question just should have asked earlier. Who responds to this exactly? I know they're your members, but who are your members exactly?

That's right, good question. So essentially anyone in the apartment industry can be a member, but that means as a practical matter, we have apartment owners, property managers, developers. We also have brokers. We also have lenders. And we also have a few suppliers of different types, whether that's people who supply washing machines to the industry. It also means service suppliers.

So there are some legal services, some architectural firms that are members, that sort of thing. They don't make up the bulk. We don't send out our survey to all those folks. So we pretty much confine it to owners, managers, developers, and then lenders and brokers who we figure have a sense for what the markets are doing. Got it. Got it.

So a pretty broad array of stakeholders in the multifamily market. Right. And they see the market from different sides. And the other thing is we've only talked about one of the questions. We do have other questions that are more on the investment side. So we get at that side of it too. And hence, you do want some of those players answering these kinds of questions as well. So, yeah.

Yeah. And what I noticed was on those other questions, pretty large declines in pricing. So it sounds like, or I should say volume, sales volume. So these are transactions. And I mentioned pricing, but in the context of equity and debt financing, particularly debt, that looked like it really, that probably goes to bank lending to the multifamily sector. That feels like that really came off pretty considerably in the last quarter.

Yeah. As a matter of fact, it's for only the second time. been doing this survey since the middle of 1999. And only the second time in this history did not a single person say that now is a better time to borrow. Yeah, right. I've actually had a lot of bankers in the CRA space mentioned. And in fact, when I was speaking at your conference in D.C., because it was a couple of months ago, it came up that bankers, particularly the big guys feel like they're under a lot of regulatory scrutiny and that the Federal Reserve and others are raising capital standards with regard to their multifamily lending, and that is really

having an impact on their ability to provide credit. Is that sound right? And we've had some people tell us that some banks, and I don't think I will name them, but have been told not to make loans to apartment owners or developers at this point. So whether that's, That's what everyone is hearing or what these individuals have been hearing from the banks. I can't say for certain, but there's no question that banks are pulling back. And even those that don't, you know, you have the dual impact of the rates themselves are much higher now than they were six months ago. But on top of that, what we call proceeds. That is to say, you know, they won't give you 80%.

Now it's maybe 75% or maybe it's 65% or whatever it might be. So the amount of debt financing you can do is a smaller share of the total capital stack. So in that sense, too, it's a tougher time to borrow. Right. Well, let's talk about what is driving all this. And, you know, like everything in economics, it comes down to demand and supply. So I don't know how you want to frame this or where you want to begin, but what was driving the very tight market tightening market back in the summer of 2021 and now is driving the pullback in the market.

There's a long list of demand supply issues here. What would you put at the top of the list of reasons for what we're observing here? This is going to be the easiest question you will ask me this entire podcast. Oh, is that right? It is. We haven't produced anywhere near enough housing of any type. Pretty much anywhere in the country. So by any type, I mean for sale and for rent.

I mean, it's, you had people talk about double-digit rent increases year over year. Yeah, they were 10% in some cases. But home prices are up 20%, 25%. So when both for sale and for rent, rental housing is seeing these kinds of increases, that tells you that the demand has not been met by a sufficient supply. And we've been underbuilding for, you could argue, since the, you know, bursting of the house price bubble and things, you know, of course collapsed after that. But then we haven't really gotten back on track fully since then. And for reasons, I'm not sure I know all of them, but demand was slower to come back.

But boy, once it did, we found out just how little housing we had built and how much. badly we needed it. And so I think more than anything else, the lack of housing supply is what's caused the tightness in both for the home ownership and for rental housing. Now, obviously, Fed's tightening of monetary policy has affected the for sale market quickly and things are turning around much more rapidly there. But anyway, I think that's the underlying issue. And, you know, whatever kind of cyclical downturn or slow down we're facing in the next six, 12, however many 18 months, I don't think this under supply issue is going away. And I think we're, you know, either now or then we're going to need to build a lot more housing. Okay.

So the entire housing market is under supply, both on the rental side where you're focused and on the homeownership side. In fact, I think the homeownership vacancy rate is even, is at a record low. It's never been as low. So on that, based on that measure, it's even tighter than the rental market. So that explains partially what have the tightness that we have observed. It was certainly back summer of 2021, that underlying tightness in the market helped to, we've got to pick up in demand coming out of the pandemic. The economy reopened.

household started to form that had not formed during the teeth of the pandemic. So that surge in demand bumped up against that lack of supply and that caused rent growth to go skyward, you know, back again, a little over a year ago when the market was as tight as it was. Is that a fair characterization of that dynamic? For sure. Yeah. But now, here we are today, we still have that under supply. You know, it doesn't feel like that's gotten any better. Vacancy rates across vacancy, vacancy rates are as low as they were a year ago.

But now we have rent growth falling off sharply and now rent declines in more markets. So what goes to that dynamic? What has caused that? Well, that's a demand side phenomenon. Demand side. Okay. And it's, but one has to be a little careful here.

So it's demand side. It's caused by, at some level, obviously the Fed tightening monetary policy. But it hasn't, it hasn't yet been the case that we've seen people who are looking to rent apartments showing up with lower and lower incomes. and therefore it's immediately an affordability problem. That's actually not been the case. Here's a couple of interesting statistics from some earning calls from apartment reits this week. Equity Residential or EQR, which is the biggest apartment reet by market capitalization anyway. They said in the last 12 months, the average income of someone who signs a new lease on one of their apartments.

This is not the statistics game, but think what that number might be in your head. And then I'll tell you the actual number, it's $174,000. And I'm guessing that's higher than what you may have had in your head. About $100,000 more. Yeah. So they're not having a problem with people being unable to pay the rent. That's not yet. That's not yet what the problem is.

Similarly, again, EQR says the rent to income ratio for these people signing new leases. is 20% or a little less. The other largest apartment reed, Mid-America Apartments or MAA, the largest by number of apartment units owned, although they own them in somewhat less expensive markets, so the capitalization is the same, but different point.

They say the number is the rent-to-income figure for their new lease signings is around 22%. So neither of these is showing the kind of stress, level that would suggest affordability is sort of pulling back on demand. So what it means – can I push back just a little bit before we move on? So these are high-end, though, rental, right? This is not bread-and-butter workforce rental or affordable rental, right? Which is – is that right or wrong?

Of course. That's correct, yeah. Okay. But that's – in some – so these are market rate rentals. Equity Residential has probably higher end than Mid-America does, but that's mostly by markets that they're in, Mid-America much more in the southern tier and mid-America, as the name might suggest, and EQR much more on the coast than the expensive markets. But you see this replicated throughout the entire market rate industry, another one of the private data providers. I don't know if I'm supposed to not say their name or say the name.

No, no, far away. We're good with any competition. It was not a competition. Yeah. So Real Page had looked at the data that they have a large sample. I don't remember how many millions of apartments that they're looking at. But the median, I believe it's the median not the mean. The median rent to income ratio, this is going to be on new lease signings because once someone signed a lease, no one's keeping track of incomes anymore. But it's still 23%. Okay.

So it's not just the so-called luxury, which really just means higher end. It's not, but not just there. But it's also not the entire market. So I accept that, that there are a lot of apartments that are not in that set of things. But anyway. There's a lot of suspense here. Yeah. So my point, my point to all of this is that what is happening,

is that there's a great deal more uncertainty about what the future is holding. So people may still have good incomes, but I think they're getting a little more nervous about what the next year is going to bring. And so a couple of things happen. You're seeing fewer people walking in and looking to lease.

So new lease-up traffic is down. On the other hand, not many people are leaving either. So moveouts are also down. The renewals is a very high number right now. Part of that is some of these people would have moved out to buy a home. And that's about the last thing they want to do right now, both with mortgage rates and again, that economic uncertainty of not being sure what the world is going to look like in a year from now. So maybe this isn't the best time to sign a 30-year contract. So you're saying it's not that rents have gotten so hot.

that it's gobbling up such a large share of people's income that they can't afford it, and therefore you're getting demand destruction. People aren't renting because they just simply can't. You're saying they've got the income. It feels like they've got the income because the rent to income ratios are still kind of okay in the 20, 25 percent range. And just as a benchmark, people kind of think if it's over a third, you've got a real affordability problem.

So 20, 25% seems, you know, okay. That's not it. It's that people are just so very nervous about, well, they have that same income, you know, six months from now, a year from now. That's what you're saying. So, yeah, so let's be clear. So the first part of that is data and the second part of that is my trying to understand the data. So just to be clear. Yeah, yeah.

You're very careful. Do you notice that, Chris? He's like, incredibly careful. Yeah. But this must imply that the new household formations are not coming online, right? The system is, if it's still functioning, right, and the rents are not increasing, right? It must mean you're not getting new entrants coming in, pushing up rent prices further, right? So is that where we're seeing the effect here?

The younger adult is not moving out because of the uncertainty or they're doubling up, tripling up. Well, I wish I had data on that, Chris. You know where I can find any. Yeah, I know. No, logically. No, logically that would ask. But that's what's going on, right? So, no, that makes total sense.

I think we saw some, what's the right word, unbundling of households. And, you know, from early in the pandemic through like a year ago or so, maybe to earlier this year, more people forming households and maybe sort of pushed some of. household formation from the future to the present. And now we're seeing maybe a little bit more doubling up again. And whether that's people who were going to move out from their roommates and then decided not to, let's just sign another 12-month lease on this. So they didn't form a new household or people in other living situations that didn't form a house. I think that's happening. Obviously, can't prove that data just yet. Chris, so does that resonate with you, Chris?

Or if I ask you the same question, what would you put at the top of the list of reasons for this, what we're observing in the rental market? Does that sound right? Yeah. Yeah, my narrative is that there is demand destruction in the form of those household formations not occurring, right? It's not that people are pulling back to the extent that they, based on what Mark has suggested, that they're not pulling back and doubling up, tripling up. to a large degree, it's just that the new households that should be coming online just aren't. They're just suppressed, right? And that is causing the prices to moderate here. I've got one other possible explanation I'm going to put forward. Before I do that, I want to call

out Chris's glasses. Have you guys noticed Chris's glasses? It looks like he's got diamond-studded glasses. What are you talking about? No, look at that. He's our plastic. Oh, are they? Don't they look diamond-studded to you guys? What are you talking about? No, they don't. They don't. Oh, Mark's got the fancy ones. Look at that. Yeah, he's got the fancy ones.

He's the one who's doing. Also plastic. Yeah. Yes. Okay. Just setting that straight. Here's the other possible explanation. And I agree.

This is more secondary or tertiary. It's not at the top. I think I think your explanation makes the most sense. Could it be remote work dynamics? So we saw a surge of folks during the early part of the pandemic, first, say, 2020 going into certainly the first. In fact, if you look at our data on migrant net migration out of urban areas into other parts of the country, it peaked, I think, in the summer. I think it was actually June of 2021.

It actually peaked. So you saw a lot of folks moving from these high-cost, high-rent areas in the northeast into the lower-cost, low-rent areas in the southeast, over into Texas. And a lot of folks leaving California and Seattle and moving into the mountain west, same dynamic. And that caused a very significant increase in demand and thus rents in those areas in the southeast and mountain west that kind of, if you look at the rent data across metropolitan area, that's where you've seen the biggest rent. And it really didn't have the same depressing effect on rents in those big urban areas. They kind of moderated. It came in a little bit more during the teeth of the pandemic. But just because of the kind of the arithmetic here, it's juiced up rents.

growth in those other market, those markets in the southeast and in the mountain west. Does that, and now what's happening is since the summer of 2021, we still see a lot of folks leaving the big urban areas, but much, much less so than was the case, you know, back a year and a half ago. And so this dynamic is starting to wear off and the impact on rents are, now depressing rents as opposed to juicing rents. Does that, does that resonate? Does that sound roughly right? Well, a couple things. So it's a, so my, my example of exactly that phenomenon is Boise, Idaho. Boisee, by the way, Boisee. The mayor makes, oh, here we go, here we go. Really important point. It's not Boisee, it's Boise. They get very annoyed in Boisee when people say Boisee. Just saying. Thank you for correcting me on that one.

I do want to say it correctly. But when, you know, you know, If 50,000 households leave Seattle and move to, let's say, Idaho, the impact on the Seattle housing market is essentially nil. Yeah, exactly. But the impact on the Idaho market is you've just blown out the entire market. There are no more houses left in Idaho. Said it beautifully. That's exactly what I wanted to say, but that was beautiful.

And that's why the city of Boise had the highest, you know, house price increase for one of those 12-month periods during that, during the last couple years. And now they're negative because a few people left. It just, it's a smaller market. It doesn't take as many in absolute numbers to sort of juice it or or knock it down. So I think that's true. That's truly what, what has happened there. For the larger narrative, I'm a little agnostic, not because I think it's wrong, but just because I think, I'm trying, you know, it's easy to come to snap conclusions that are wrong. And we've seen this any number of times. We go back to 9-11. No one's ever going to want to live in a big city again. Really? That was about the best 10-year stretch big cities in the U.S. have ever had in recent years.

And then, you know, we had the great resignation. Actually, people got sick. That was, you know, and they couldn't go to work. Or they, kids weren't in school. So they had a statement. stay home and watch them. Not really the great. Now we have quiet quitting. Do we though? Do we really? I'm not so sure. So, and I know that you, it's not anything that you suggest, Mark, but these things become memes in the popular press and everyone says they're true until everyone forgets them. And then you forget that you ever said any of those things and it's gone. I think work from home is different. There's no question. It's, it had been happening anyway. it had been on the increase.

We've probably moved it forward quite a bit because of the pandemic. But not everyone can work from home. So it's still a minority of people who are in a position to be able to work from home. So we have to just keep that part of it in mind. And the other thing is, it's not as if, wow, I don't have to, you know, I work in downtown Manhattan and it's such a horrible commute to come in from New Jersey. So I had better live in downtown Manhattan. So I don't have a horrible commute.

but it's costing me a lot of money. Now I don't have to. You know, I'm going to move to New Jersey, really? There's a lot of good things in New Jersey. Don't get me wrong, but it's not like people don't want to be in New York. You know, New York's been around a long time. Not as long as Paris, but, you know, same issue there. Paris is always going to be Paris.

New York's going to be New York. People want to move there. People want to move to San Francisco. If they just build housing in San Francisco, they're going to attract a lot more people. they'd stop leaving. And actually, I have some hope that under the current administration, they may actually be moving towards improving the housing construction in California. Yeah.

So we'll see. So I take your point, Mark, and it's not that I think it's wrong, but I think there are a couple of trends going on here, and we'll see what they play out. But I really think that some of these cities just need to build more housing, and they wouldn't be quite so unaffordable, and they'd be far better. wrong. To that point, and I totally agree, we are seeing more supply, and this goes now to a little bit to the outlook for the multifamily market and rents and what it might mean for inflation. It feels like we got this demand issue, and that's not going to go away. If it's uncertainty or

income and or both, that doesn't feel like that's going to get any better over the next six, 12 months, you know, the economy under any scenario is going to be under a lot of pressure. The job market is definitively going to slow by definition because the Fed's going to make sure that that happens. And then also on the supply side of the market, it does feel like we're getting more supply, right? And in fact, if you look at multifamily starts, that is a pretty high level historically, not the highest it's ever been, but it's within spitting distance. And you also have a lot of multifamily property in the pipeline going to completion, haven't been able to get across the finish line because of supply chain issues and can't get appliances, can't get

building materials, whatever it is to finish, or labor because of the pandemic, as you pointed out, as those issues iron themselves out, as supply chains continue to ease, as labor markets ease up, we should start to see that those properties that are in the pipeline come to completion. So we should get more supply. So I just painted a picture of continued weak demand, some improved supply. That suggests that rank growth vacancy should be no longer falling, maybe even rising, and rent growth should remain under pressure at least over the next year or so. Does that sound right?

Does that resonate for you, that framework? Yes, but central to the point that you're making is the slowdown, that the Fed is engineering. So were it not for that, the level of new, I look at completions rather than starts for a minor technical reason that as a way it's calculated, some of the some of the starts that are listed as multifamily are actually not. They're just their duplexes, their townhouses. So they're really single family attached housing. So it's not literally part of the multifamily housing. So by the time to get it completed, that gets correct. So completion's number typically lower than the starts number for that reason as well as some others. But anyway, so but the numbers, the numbers have been picking up. Actually, they're sort of down this year over last couple of years. But at the levels, you're looking at 350,000, five plus. So, so units in buildings with at least five units in the building. Back in the early to mid 80s, you were looking at 500,000 and above.

Back in the early 70s, you were looking at over 700,000, almost 800,000 one year. And so if you, to the extent that you think generations matter, and I'm willing to say that we can easily exaggerate the importance of the generations moving through the pipeline. But when the baby boomers came online, there was a lot of concern. Uh-oh, we're going to have to build a lot of housing. And we did. We build a ton of new housing. And they came, but coming online for them was in two ways, one before and then after the big recession of 80, 81, 82, have we want to count that.

But one of the, what we used to one time called echo boomers, Gen Y, whatever, however you want to define them any more millennials. I don't know how people define any of these generations anymore, but they're at least as big as a baby boomers. And we're not seeing a comparable increase, at least on the multifamily side of new construction. So these numbers, they may look large relative to, you know, everything we've seen since 1990 on. But in the broader context, I don't think they're at all out of line, except that we might need more of them. This might not still be enough. Not arguing that at all. But in terms of what it means, I'm focused like a laser beam on rank growth because we're going to in a minute take this back to inflation.

And in my mind, rank growth is driven by the vacancy rate. And the vacancy rate is driven by the change in demand and supply. And we were all on the same page around demand remaining week, maybe even declining for the reasons we discussed. And I'm arguing we're going to get more supply. It's still not, you know, 1980s, which, by the way, was all juiced by tax incentives. So, and then that, you know, juice that up. And then we saw a crash in the multifamily market after that. because of the high vacancy rates that resulted.

But regardless of that, that we're going to get more supply. So that means to me that rent growth in 23 is going to be soft. I mean, maybe even declines in rent growth. That's where I'm going. Does that sound right? Chris, does that sound right to you, that forecast? It does. I don't know about declines, but flat should be mine.

Yeah, we may not get declines. Yeah, that might be because landlords are going to be pretty reluctant to cut cut rents in a broad-based way, at least consistently. Does that make sense to you, Mark, or am I overstating the case? No, I think it makes sense. As long as when we're talking about rent growth, we're sticking with this month-to-month change and not looking back 12 months because those numbers take forever to actually turn around. I mean, the year-over-year can be elevated. Oh, yeah, yeah. Yeah, yeah. Good point. Yeah, good point. Okay, okay, very good Okay, so I want to talk about connected dots back to inflation.

And, Marissa, can I call you back into the conversation? Of course. Can you give us kind of a primer on how rents get into measures of inflation like the CPI and the core, in the expenditure, the consumer expenditure deflator? Yeah, so shelter costs make up a very large proportion of the CPI. They're a third, I believe, of the overall CPI. And so that's not only rents, but that's also so-called homeowners equivalent rent, which is sort of the implicit rent that a homeowner pays him or herself every month.

So it's a huge portion alone of the way the government measures inflation, which means it means a lot for what we see in month over month and year over year, measures of inflation. So the CPI looks at both new, they ask people what they are paying for rents. They're also asking about new rents and they're asking about renewed rents, right? So if you stay in the same apartment and your lease comes up for renewal, they ask about that. There's some evidence that at least looking at private sector sources and Mark, I'm sure, you know, this is what you can look at too, is that people signing brand new rents right now are seeing much softer rental price increases than, say, a year ago or so,

so that the renewals are still kind of hanging up there, but the new rent signers are seeing weaker pricing for rent. Because of the way the government calculates rents, that'll take quite a while to show up in the CPI. So there's going to be this very long, lag catch up effect before any softening and new rents shows up in the CPI data. In fact, you know, I've been reading a lot about it. And we've talked about, I think you guys have talked about it before on the podcast. It could be a year before we start actually seeing that manifesting itself in the official inflation statistics. Six, nine, twelve months, we should start to see some effects. Yeah. Some meaningful. This is a very long lag item, right?

Somebody signs a rent. It's usually for a year. So that rent, that price is not going to reset. again for another year. So it's harder to capture, you know, changes that are happening right now in the market and the CPI data, which kind of goes back to Mark's concern that, you know, the Fed is looking at data that might actually be lagging

and trying to hammer down inflation. And but there is a lag with a lot of this stuff, right? So there is that, there is that risk that they're, they could overdo it. Yeah. Chris, do you want to add anything to that description

of the link between the... I think she would laid it out. Perfect. Okay. So this goes to my outlook for inflation and my somewhat more optimistic perspective on what it means for monetary policy and ultimately what it means

for the risk of recession. It feels like to me that the cost of housing in the, inflation statistics, particularly the CPI, are peaking right now. It reflects this very, very tight, tightening market, rental market that we had back a year ago. You know, in Mark's survey, when we're peaking in terms of tightness, when rank growth was at its peak month to month year over year. And that probably will continue to put upper pressure on the inflation numbers

you hear for the next few months. But as we move into next year, and certainly by this time next year, we are going to see a significant, meaningful moderation in the cost of housing in the CPI and the consumer expenditure flayer. Given the market conditions, rental rents we're seeing not right now, and just what we just established will be pretty weak rent growth,

if any rent growth in the coming year. So as we make our way towards the end of next year going into 2024, this significant tailwind of inflation is going to become, certainly going to blow a lot less harder, may actually become, you know, a bit of a headwind to inflation. It's key to getting inflation back down. How would you react to that narrative? Mark, do you have a perspective on that? Does that sound roughly right to you, or do you have a different perspective?

No, it sounds exactly right. I would just a quick little point, just people don't misunderstand. understand, there's no complaint about how the CPI measures rents. What they're doing is a perfectly reasonable thing to do. There's nothing unreasonable about it, but it is true, as Marissa says, 11-12th of the respondents to the survey are going to say, my rent did not increase. Zero, zero from last month. And that's what it should say, because that's what it's trying to measure. It's just not as good an indicator of what's happening at the margin, what's happening in markets today. Now, you know this. Marissa knows this, Chris knows this, I know this. Obviously, the Fed has to know this too. It's not that they don't know this. They have great analysts and researchers and account at the Fed. The question is, how will they react to knowing that? That's what I don't know. And as you say, I think it's a reason I think they just need to be careful about not going too far and then have built too much tightening into the system. We obviously, if they did nothing else on tightening.

We would already still see rents pausing, you know, flattening, maybe declining, going into middle of next year. He's a real dove, Chris, isn't he? I mean, Mark. It sounds like it. Yeah, man, what a dove. Yeah. He'd skew the whole FMC if he got on the Fed. They need a little bit more diversity of thought there.

Yeah. Well, they could use, well, I won't say that. Let's leave it at that. Yeah, got it. Hey, Chris, you heard my kind of frame there. What do you think? Yeah, I agree with that, but that's a year out still, right? So that's why I, Mark, he's, you know, if he gets appointed to the board, these guys are going to keep raising rates to, you know, to the sky. We're going into recession. No, I'm not saying that's what they should do. I think that's what they will do. They would do. They're going to overstep because of the credibility issues. Hey, let's, we're running out of time. Let's play the game.

This is kind of, we'll end the conversation with the, with the game, the fun part, the statistics game. And that is, we each put forward a statistic. The rest of us try to figure that out through questions and clues, deductive reasoning. The best question is one that's not so easy. We get it immediately, one that's not so hard we never get it, and one that's apropos, hopefully to the data that's been released or the discussion at hand. So with that, let me turn to you, Marissa. What's your statistic of the week?

negative. Are you sure? Are you sure it's negative? I am. I had to double check it, but yes. Marks, he has a bit of dyslexia on these. Okay. Well, this is a tough crowd here.

This is a tough crowd. We're very serious about this game. It's quite the initiation into the podcast for me. It's like a roast. Okay. So the number is negative 1.63% in August. this came out this week. Came out this week.

For the month of August, down 1.63%. Is it a house price? Yes. Is it house prices in the West? No. For the month of August, it declined 1.6% in some region of the country? No, nationwide. It didn't default 1.6% nationwide, did it?

you're like somewhere in somewhere you're you're the correct answer is somewhere in the middle of what you're saying oh your guesses is this the f h f a series no is it's the s n p k schiller case schiller yeah yeah it's not it is it month to month yeah okay it's not donation i know that and it's not a region san francisco no is it the 10 city average the 20 city yes mark mark gets it oh Okay. It's the 20-city K Schiller. Okay, very good. Composite index.

Wait, he gets it. He gets the credit for that. He said the correct answer. He took it the last centimeter. I took it all the way up to the line. Nevertheless, he answered correctly. Mark, I'll be happy to share the trophy with you and all the earnings involved. You are way too nice, man.

You're way too nice. Yeah, we're a cutthroat here. No, no, you deserve it. You get a cabbell for that. I think we got some extra cowbells. Okay, so why'd you pick that, Marissa? So I picked it for, I think, this discussion of how we've been talking about the multifamily market, but we know the single family market.

Pricing and demand has, right, falling off a cliff, really. This is the second straight month of price declines in the Kay Schiller when you look month on month, still up strongly over 13% if you look year over year at prices. But I what I picked this one because not because the top line statistic is so interesting, but because every single one of the 20 cities in the composite had a price decline over the month. Every single one of the 20 cities. I don't think Philly's in that index, though. Philly is not in it. Yeah. No, no, Philly is not in it. Mark, why don't they have? Philly in that index. That's just bizarre. It's like the key market.

I didn't do the index. Can't help you on that. All right. They have Cleveland. They have Minneapolis. They don't have Philly. I think we need to construct our own index. What do you think, Chris? Yeah. I'd be a good idea. Yeah. And Chris, what did our index say? And in fact, we have data for for what month, Chris? For September. September. Oh, okay. More timely. How about that? What is you say? Do you know what the number is, Mark? I do indeed. You don't know Oh, you do? Oh. Oh, yeah. Absolutely. Negative. National nationwide house prices. Yeah, down six tenths of a percent. Yeah. And annualized, it peaked. Our data shows the national house prices actually peaked in July. So it was down in August and September. And annualized, the decline is now 6.3%. So given the two-month decline, if you annualize it, if it happened at the same rate of decline occurred for the entire year, down 6-3. That's pretty. That's nationwide.

That's pretty meaningful, right? So, I mean, San Francisco is getting crushed. Yeah. I think, yeah, right. And that's September, by the way. And so we're pretty proud to get that out very quickly. That was a good statistic.

But I will just point out, SMPK Schiller doesn't, when I said nationwide, I meant the 10 city, the 20 city average. Oh, okay. Because there's no, come on. Yeah, come on. Yeah, there is no nationwide other than the 20 city ever.

All right. Everyone knows that, right? Chris. All right. All right. You go, you're next, Chris.

What's your statistic? All right. I'm going to have to go with negative 0.1%. Hmm. Statistic

that came out this week. Negative 0.1%. Negative 0.1%. Came out this week. Is that a month on month figure? What's that?

Is it a month on month figure? Month to month? No. No. Quarter to quarter. How about a little hint? It's a negative.

0.1% or thereabouts. Thereabouts. Oh, that's an interesting hint. It's got to have some meaning, deep meaning, the thereabouts, thereabouts. Mark, you were going to ask a question.

Might be negative 0.09. Right now, it might be negative. It's a financial variable. Oh, yeah. It is indeed. It's the, it's the 10-year, three-month treasury spread.

Indeed. Indeed. Inverted this week. That's a good one. That's a good one. But that doesn't influence your recession odds at all. Hey. No. No.

They're lower. Okay. They're lower. Well, you know, we got this whole negative positive thing going. Okay. Yeah. All right. I'm still focused on that policy yield curve.

Ten year versus $100. rate. That's going to be soon enough, right? We'll see. We'll see. We'll see, my friend. But that's a good one. So you're saying the 10-year treasure yield, less the three-month T-bill turned negative. So the three-month bill yield, short-term rates are now higher than long rates. And as we've discussed,

the inversion of the curve where short-rate rise above long rates, that's a recession signal. Correct. Correct. Now we have two. The 10-2 and the 10-year three-month. Can I ask on that one, how long is the average lead when it inverts to a recession actually occurring? Do you know? I mean, I know the 10 year, two years, like almost 12 to 18 months. Yeah, that's what I was going to say.

You think it's that long? I think it's similar. Oh, so that would mean no recession until end of next year? Later, yeah, that's right. Yeah, not first half, but later in the year. Okay. That's a good one. But that's an average, right?

I think they're happening. Yeah, I'm sure there are cases were much shorter than that. Hey, Mark, you're up. You want to play the game, I know, right? Well, I'm happy to play the game, although it appears I may have made one minor error. I did not realize that the data had to come out this week. No, no, no, no, no, no. I violate that rule. I said the best, the best. It doesn't have to be the best. I violate that all the time. Okay. So here's my number. And I have no idea whether you'll think this is easy, impossible, or somewhere in between. Because I just don't know you all well enough. But my number is 893,000. That's the number of multifamily units in the pipeline going to completion. That guy's good. Wow. Baby. And here's the comment. And here's the points about that. Yeah. And no collusion,

Mark. There was no collusion. Right? There was not. Okay. No collusion. Absolutely not. Where's my cowbell on that? You got it. I got it. Okay, all right. Go ahead, Mark. I was going to say, so the point is, that's an all-time high, highest ever. But to your point, Mark, you were bringing up the point that if we begin to see some of the supply chain disruptions ease, some of that stuff will come back online.

However, some of it is also because a greater share of new multifamily construction is high rise rather than garden. That's a trend that's been going on for some years now. And that takes longer to build. So more stuff will be in the pipeline longer as a natural phenomenon because of that. So it's not as if it's going to all come online really in a hurry and we'll just jack this up. I think we're just going to see larger numbers, multifamily under construction on an ongoing basis, but not necessarily this high. This should moderate align with what you were saying, Mark.

this is permits? Is this permits or this is starts? This is under construction. Started but not completed. They're in the pipeline. They've got a foundation or whatever and they're off and running. You can mothball them, but boy, they not a multi-I don't think you can do that for maybe a single family, but not a multifamily.

Well, the other thing is in a multifamily world, if you're building, you know, you're starting a high rise. Once you start construction, you're still 18 months out from completion. So you're not going to stop it because there might be. recession in six months. You got to get this stuff built. And you just have to. And that's one difference between the industry today. And by today, I mean late 90s through the present. And before that, you have professional apartment owners that this is their business. They're not like going to disinvest and like go into something else if the industry goes into recession. They have to manage

through a recession. And that's what they do. And they'll still come out the other end. So they're thinking longer term than just what the cycle is doing. right now. And, of course, as you pointed out, Mark, we were under supplied. So, okay. Yes. You know, I know there's going to be, you know, once things normalized here, a little bit on the demand side, I got some people are going to scarf down these units because we

don't have nearly enough. Yeah. Exactly. I'm not going to give one because we're, we're definitely running out of time. And I've got a hard stop in a couple of minutes. But I do want a lightning round. What is the probability of recession in the next 12 months? Ready?

Marissa. 60% 60. Chris? 70. 70. Mark? Well, it's either they will be or they won't be, so I'm going with 50%. 50. I'm with Mark. I'm going with Mark and Mark knows what he's talking about. 50. 50, 5-0, 0-0. I'll just point out the guys with gray hair in case of Mark, no hair, Mark Zandi, no hair. You know, we're at the 50, and these youngsters, you know, although Chris is getting a little gray there.

So it was diamond study glasses. So flip a coin. All right. We'll see. Okay. All right. We're going to end this podcast that way. It's written in granite now.

Merce is 60. Chris is at 70. Mark O is at 50. And Mark Z is at 50. So that's, we'll see how this all plays out. And, uh, hey, Mark. That was fantastic. I thought that was highly productive, and I learned a lot. And I'm going to follow that survey now very carefully. Thank you for bringing that to my attention. I don't know how I missed that in the past, but that's a great survey. So thank you. You're welcome. And just for that we also have another survey we've only been doing for a shorter period of time. I think a couple of years. Unfortunately, it's a similar name, but even longer. So you won't like it. Quarterly survey. I forget what it's called construction stuff. But it has lots of detail on precisely those kinds of questions are asking.

Are there supply shortage issues on certain things? What about the labor? Can you be able to get later? What have you done when you can't get labor? What kinds of delays do you have? A lot of great information, easily found on our website. But if you can't, let me know. And I'll send you the URL.

Yeah, we should cover that on economic view. It sounds like something we should be covering. Okay. With that, we're going to call it a podcast. Talk to you next week. Take care of everyone.