Expect fundamentals to decelerate through the first few months of 2023. According to Freddie Mac, “demand for multifamily is expected to return later in the year, as long as the labor market doesn’t fall into recessionary territory.”
In Northern Nevada, vacancy remains low going into 2023. Johnson Perkins-Griffin reported that vacancy decreased to 3.04% (-40 basis points) while rents decreased from $1,654 to $1,625 (-$29 or -1.75%) and concessions offered are up to 32% from 22.33% (Q3). Anecdotally, rents are averaging $1,625 in Q4 2022, flat compared to $1,654 (-29) in Q3, also flat compared to $1,616 in Q4 2021. East Sparks remains the highest rental submarket with rents averaging $1,846 respectively.
The Federal Reserve is not yet done making it more expensive to borrow money as interest rates are expected to be raised again on February 1, probably by 0.25 percentage points to 4.5% – 4.75%. According to Forbes, there’s a “reasonable chance the Fed opts for a larger 0.5 percentage point hike. The February decision is the first of eight scheduled meetings for the Fed to set intertest rates in 2023.” Five officials are penciling a peak target range of 5.25-5.5 percent.
One of the biggest risks to market performance in multifamily for 2023 will be the state of the labor market. Bankrate.com states: “if the Fed achieves the soft landing without a large impact to the job market, consumer confidence will return and household formations will rebound, but most likely not until mid-2023…however, the chance of a recession remains elevated throughout 2023.” For Northern Nevada, the labor market remains strong. EDAWN announced that 27 companies relocated or expanded their workforce in 2022, adding a combined 2,263 new jobs at a record average wage of $32.67, along with 12 new headquarters. Leading the way was the tech industry, followed by manufacturing, logistics, distribution, and e-commerce; all positive indicators for multifamily investment in 2023.
Due to the uncertainty of the debt markets, the next few months will be pivotal in how the economy performs and will have a profound impact on multifamily investment. Though tailwinds remain, the current trajectory indicates a healthy 2023, more weighted to the second half.
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