What to Watch This Week: Lots of Economic Reporting; Multifamily Momentum Following NMHC
The key reports, market movers, and insights shaping the week ahead
What Happened Last Week
Federal Funding Freeze: A government funding freeze is creating ripples in the housing market, adding to uncertainty in the multifamily sector.
Q4 GDP Growth vs. Fed Policy: Strong Q4 GDP growth (+2.3%) contrasts with the Fed’s decision to pause rate cuts, reflecting cautious economic management.
Fed Holds Rates Steady: The Fed maintained the federal funds rate at 4.25%-4.50%, signaling a wait-and-see approach for inflation progress.
NMHC Ambiguity: The National Multi Housing Conference (NMHC) maintained a positive long-term outlook for multifamily, even as short-term challenges like oversupply and rate volatility persist. Lots of staring at each other and hoping someone else moves first - chicken or the egg.?
The Week Ahead: Economic Insights
FOMC Recap: Last week’s Fed decision and press conference announcing to hold rates steady at 4.25%-4.50% came across as hawkish as expected. Fed Chair Powell emphasized persistent inflation concerns, removing any mention of progress toward the 2% goal.
GDP Data: Inflation-adjusted GDP for Q4 came in at 2.3% annualized, falling short of the 2.6% estimate and down from 3.1% the previous quarter—another signal of slowing growth.
Rate Expectations: Swap markets now estimate just a 17% chance of a March rate cut, down from 27% pre-FOMC. However, traders still anticipate at least one 25-bps cut this year, with a 90% probability of a second by December.
Yields & SOFR: The 10-year Treasury yield closed at 4.55%, while the 2-year rose slightly to 4.21%. The 30-day average SOFR ticked down 2 bps to 4.33% week-over-week.
Market Reports to Watch
Monday Feb 3rd:
Construction Spending: Insights into development trends could signal shifts in multifamily supply pipelines.
Tuesday Feb 4th:
Job Openings
Fed Commentary: Updates on labor demand and remarks from Fed Vice Chairman Phillip Jefferson could influence rate expectations and investor sentiment.
Wednesday Feb 5th:
US Trade Deficit
S&P Final Services PMI
The trade balance and service sector data will provide broader economic context, with implications for multifamily fundamentals like job growth and renter demand.
Thursday Feb 6th:
Initial Jobless Claims
US Productivity
Labor market data will shed light on job security trends, critical for multifamily markets. Productivity figures could also influence inflation projections.
Friday Feb 7th:
U.S. Unemployment Rate
YoY Hourly Wages
Both are key labor indicators to watch for hints on renter affordability and market stability, especially in high-demand metros. Investors will focus on Friday's jobs report, with potential tariff impacts looming over various sectors.
Multifamily Highlights
Occupancy Levels Stabilize: Apartment occupancy has returned to historic norms, providing a positive signal for multifamily operators.
Investment Surge in 2024: Multifamily investment hit $146 billion last year, up 22% from 2023. Key drivers include portfolio deals and bullish investor sentiment, with 70% of investors planning to increase acquisitions in 2025.
NMHC: A Catalyst for Activity: The National Multi Housing Conference (NMHC) served as a major spark for apartment investment volume. Over 40 institutional assets fully went to market during the conference as brokers sought to capitalize on the gathering and give buyers something tangible to discuss.
What’s Next? Everyone seems eager to buy, but what actually transacts remains to be seen. The Fed’s rate decisions and predictability around future rate cuts will play a critical role in whether these assets change hands or linger on the market.
Keep an eye on post-conference transactions—they’ll provide a solid quantitative measure of investor sentiment and transaction volume heading into the year.
CRE Trends: Extend and Pretend
Loan Modifications Hit $19 Billion: The "extend-and-pretend" approach in commercial real estate reached record levels in 2024. With $19 billion in loan modifications, lenders continue to push maturity dates, betting on lower interest rates to make refinancing feasible. Who called it?
Defaults Expected to Rise: Fitch Ratings projects more loan modifications and maturity defaults this year as economic uncertainty lingers, cementing this strategy as a recurring theme in 2025.
Equities Recap: Multifamily Context
Wall Street Volatility & AI Impact:
The market saw heightened volatility as China’s DeepSeek AI emerged as a formidable competitor to Western AI models. This is particularly notable for multifamily markets in the Bay Area, where tech companies are grappling with return-to-office mandates. Increased corporate uncertainty could further delay leasing demand in urban cores dependent on tech tenants.Indices Rebound:
Despite early-week turbulence, indices rallied: Nasdaq (+2.66%), S&P 500 (+1.62%), and Dow (+1.34%). This recovery reflects broader investor optimism, which could trickle down into multifamily investment sentiment if economic confidence holds steady.Crypto Gains & Fed Approval:
Cryptocurrency markets surged after the Fed announced banks can service crypto, signaling a potential shift in liquidity sources. While not directly tied to multifamily, increased innovation in fintech could open new avenues for alternative funding in real estate deals.
The broader economic movements this week underline the importance of staying agile in underwriting and market strategy, particularly for urban multifamily assets in tech-heavy markets. Let’s see if post-NMHC optimism translates into tangible transaction activity in the weeks ahead.
This week is shaping up to provide valuable insights into inflation trends, rate expectations, and the ongoing dynamics in multifamily and CRE.
What are you watching for? Drop your thoughts below!
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