Apartment List National Rent Report
Our national rent index increased by 0.5 percent over the course of March, the second straight monthly increase and a slight acceleration over last month’s pace [+0.3%]. This month’s increase is of a similar magnitude to the typical March price change that we saw in pre-pandemic years. After 2022 closed out with record-setting price declines, it appears that rental demand is rebounding in line with the usual seasonal trend.
Year-over-year rent growth is continuing to decelerate, and now stands at 2.6 percent, its lowest level since April 2021. Year-over-year growth is now pacing slightly below the average rate from 2018 to 2019 (2.8 percent), and is likely to decline even further in the months ahead. (…)
The rent index rose 0.52% during the first 3 months of 2023, a 2.1% annualized rate, down from last year’s 6.9% pace in Q1. Recall that these are for new leases which typically account for 10% of all leases. The data confirm that the MoM declines seen in the second half of 2022 were part of the normal seasonal pattern and not, at least yet, a reflection of an impending collapse in rents.
(…) But even as rent growth has tracked that typical seasonal pattern, the recent winter dip went well beyond what we normally see. The 3.4 percent decline in rents from last August through January was sharper than any other five-month period in the history of our estimates (starting in 2017). This month’s 0.5 percent rent growth was just slightly below the average March increase of pre-pandemic years; month-over-month growth came in at 0.7 percent in March 2018 and 0.6 percent in March 2019.
This month’s data suggests that we’re beginning to see a mild rebound in rental demand, following a particularly slow off-season to close out 2022. That said, the surging rent growth that we saw in 2021 and the first half of last year is solidly behind us. Even if demand continues to strengthen, a robust supply of new inventory hitting the market this year should keep prices in check. It looks like 2023 is shaping to be a year of modest positive rent growth. (…)
From 2018 to 2019, year-over-year rent growth averaged 2.8 percent, slightly faster than the current level. And it’s likely that the year-over-year growth rate will continue to fall in the coming months, as we expect rent growth through the first half of this year to be slower than it was last year. (…)
Our vacancy index currently stands at 6.6 percent, which now puts it back in-line with the average pre-pandemic rate. With a record number of multi-family apartment units currently under construction, we expect that supply constraints will continue to soften. 2023 could be the first time since the early stages of the pandemic that we see property owners competing for renters, rather than the other way around. (…)
The vacancy rate now sits at 6.6 percent, exactly matching the average rate from 2018 to 2019.
But 6.6% (red line below) is still well below vacancy rates seen since 1985, a period during which CPI-Rent ranged between 2.0-4.5% YoY. It dipped below 2.0% between 2009 and 2011 when vacancy rates spiked to 11% post GFC.
As I wrote in my Rent Rant #2 piece on December 2022:
CPI-Rent has shown a very tight relationship with wage growth, particularly between 1990 and 2009, even as vacancy rates reached very high levels.
Since 2012, rent increases have exceeded wage gains by a significant margin, reflecting the very low vacancy rates.
The apparent coming “tsunami” of new apartment buildings (blue below) will provide some relief but rental costs are much more correlated with wages which have yet to show signs of a meaningful slowdown. Note how the increases in new apartment buildings did not prevent rent inflation (red) from accelerating in the late 1990s, the mid-2000s and between 2010 and 2016. Wage trends (black) had a much more significant and direct impact.
In fact, CPI-Rent is 99.8% correlated with wages.
Again, I’m no rent expert. Just observing that, when it comes to inflation, we should really focus on wages.
BTW: From the recent N.Y. Fed 2023 SCE Housing Survey:
On average, households expect the cost of rent to increase 8.2% over the next 12 months, compared to 11.5% in February 2022. Over the next five years, households expect average annual rent increases of 5.0%, down slightly from 5.2% a year ago. Households expect rent increases to substantially outpace home price increases over the next five years.
Renters reported a small increase in their probability of owning a home in the future, from 43.3% in 2022 to 44.4% this year. Nonetheless, this figure remains well below the 2015-2021 period, when it was generally over 50%.
Half of US Employees Earn Extra Cash on the Side, Survey Finds
(…) It’s not just low-income or cash-strapped households who are turning to additional income to help pay the bills. Those earning $100,000 annually are more likely to have a growing supplemental income, the survey found.
Overall, consumers may be amassing more than $50 billion a month in cash through extra earnings — with a large portion of that money undeclared to tax authorities, according to the report. (…)
“A vast majority of consumers became used to working from home during the pandemic, and after returning to work, many kept flexible hours and turned to alternative income streams to expand their earning potential beyond a 9-to-5 job,” Anuj Nayar, financial health officer at LendingClub, said in the report. (…)
The proliferation of apps designed to help people find short-term work or to sell products has made it easier to find additional sources of income. (…)
- New remote-work normal (Axios)
The work world is returning to a new normal, with some working from home — more than pre-COVID — but less than at the height of the Zoom-and-sweatpants moment. (…) Before the pandemic, only about 5% of workers were remote, according to data from Nicholas Bloom, a Stanford economics professor who has tracked the trend for years.
Data: Bureau of Labor Statistics. Chart: Tory Lysik/Axios Visuals
McKinsey Starts Eliminating 1,400 Roles This Week in a Rare Round of Job Cuts Consulting firm Accenture Plc said last week it will cut 19,000 jobs — about 2.5% of its workforce — over the next 18 months, one of the largest rounds of dismissals in the sector.
Binance and Its CEO Sued by CFTC Over US Regulatory Violations
The US took its most forceful move yet on Monday to crack down on crypto exchange Binance Holdings Ltd. and its chief executive officer Changpeng Zhao.
The Commodity Futures Trading Commission alleged in federal court in Chicago that Binance and its CEO, who is known as CZ, routinely broke American derivatives rules as the firm grew to be the world’s largest trading platform. Binance should have registered with the agency years ago and continues to violate the CFTC’s rules, according to the regulator. (…)
“The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance deliberately chose – over and over – to place profits over following the law,” Gretchen Lowe, chief counsel in the CFTC’s enforcement division, said. (…)
“We have made significant investments over the past two years to ensure we do not have US users active on our platform,” Binance said. The company added that it has expanded its compliance team, spent heavily to bolster surveillance and taken significant actions to prevent Americans from using its global trading platform. (…)
The agency said that Zhao, Lim, other senior managers failed to properly supervise Binance’s activities and took steps to violate US laws, including instructing American customers to use virtual private networks, or VPNs, to obscure their location and directing “VIP customers” with US ties — often institutional market participants — to open Binance accounts under the name of shell companies.
The CFTC also alleged that Binance failed to implement an effective anti-money laundering program. It also didn’t establish necessary safeguards for determining the true identity of customers, the agency said. The complaint says that as of at least May 2022, the company had not filed a single suspicious activity report in the US. (…)
The CFTC alleged that the company intentionally destroyed documents. At the same time, Binance makes frequent use of the encrypted messaging app Signal to communicate with US customers, at Zhao’s instruction, the agency said. (…)
The Daily Upside:
You’ve got to hand it to cryptopreneurs, who have managed to draw the ire of just about every government regulator. In 2021, the IRS began investigating Binance, the world’s largest crypto exchange, for facilitating money laundering and other illicit activities. The SEC, for its part, has probed whether Binance sells or offers unregistered securities. And now, finally, the Commodity Futures Trading Commission has joined the party, formally accusing the company and CEO Changpeng Zhao of routinely violating derivatives rules and failing to even register with the agency.
In its complaint, the CFTC accused Binance of taking a “calculated, phased approach to increase its United States presence,” alleging that the exchange violated US laws that require futures contracts and other derivatives be traded on regulated platforms. At times, the complaint reads like a parody of a company trying to work around the rules:
• To skirt US regulations, the CFTC alleges that Binance encouraged US customers to employ VPNs to make it appear, digitally at least, that they were operating outside of US borders. That might have prompted Binance’s Money Laundering Reporting Officer (a real job title) to write in a November 2020 company chat “I HAZ NO CONFIDENCE IN OUR GEOFENCING.”
• The agency also alleges that Binance employed Signal, the secure messaging app with end-to-end encryption, to communicate with its high-profile clientele, and also intentionally destroyed documents and records. When asked by the MLRO if there should be concern over Russian customers moving money on the platform to buy weapons, former compliance officer Samuel Lim chatted back, “Like come on. They are here for crime.”
“The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance deliberately chose — over and over — to place profits over following the law,” Gretchen Lowe, the CFTC’s Enforcement Division’s chief council, said in a statement. Documents from August 2020 showed Binance earned $63 million in derivatives transaction fees that month, with many customers identified as American.
- Binance Sees $2 Billion in Outflows as Troubles Compound In a tumultuous few days, the crypto giant raised fees, suffered software issues and faced a regulator lawsuit.
- Coinbase, Do Kwon, Lindsay Lohan Are All Ensnared by Widening Crypto Dragnet
(…) As of Monday evening, Binance had experienced net outflows of $2.1 billion on the Ethereum blockchain over seven days, according to crypto data provider Nansen. Overall, Binance holds $63.2 billion in the exchange’s publicly disclosed wallets, Nansen data shows. (…)
(…) The past week saw the industry hit with another deluge of enforcement news, from the SEC’s threat to take legal action against Coinbase Inc. and its suit against the Tron blockchain network to the apprehension of crypto fugitive Do Kwon. Even celebrity crypto promoters like actress Lindsay Lohan and rapper Soulja Boy got caught up in the crackdown. (…)
At the center of much of the recent actions is the SEC’s decision to treat many cryptoassets as securities that must be registered with the agency and subject to all the regulations that go along with it. (…)
Japan to Face 11 Million Worker Shortfall by 2040, Study Finds
The working age population is expected to rapidly decline from 2027, according to the study by independent think-tank Recruit Works Institute, published Tuesday. The worker supply is expected to shrink by about 12% in 2040 from 2022, even as labor demand remains steady, the report said.
Prime Minister Fumio Kishida has made reversing Japan’s declining birthrate a priority for his government, as he warns of societal collapse as the number of babies born hits a new low. (…)
Still, the the nation of 126 million is already starting to feel the strain, with the working-age population expected to shrink by 20% from 2020 to 59.8 million by 2040, according to the report.
Kishida is already seeking ways to address a serious shortage of truck drivers expected by next year. The study also warns shortfalls are likely to become acute in labor-intensive sectors like transportation and construction, as well as health care due to growing demands from an aging population.
Japan’s relative decline in global economic standing and a similar aging crisis around the world means that boosting immigration is not the most viable solution over the long-term, the study led by chief researcher Shoto Furuya said.
An earlier research by the Value Management Institute said Japan needs 6.74 million foreign workers by 2040, or nearly four times the number it had in 2020, to achieve an average annual growth of about 1.24%. (…)
‘There Will Be No Money Next Year.’ Russia’s Economy Is Starting to Come Undone. Investment is down, labor is scarce, budget is squeezed. Oligarch: ‘There will be no money next year’
As the war continues into its second year and Western sanctions bite harder, Russia’s government revenue is being squeezed and its economy has shifted to a lower-growth trajectory, likely for the long term.
The country’s biggest exports, gas and oil, have lost major customers. Government finances are strained. The ruble is down over 20% since November against the dollar. The labor force has shrunk as young people are sent to the front or flee the country over fears of being drafted. Uncertainty has curbed business investment.
(…) state revenue shortfalls suggest an intensifying dilemma over how to reconcile ballooning military expenditures with the subsidies and social spending that have helped President Vladimir Putin shield civilians from hardship.
Russian billionaire Oleg Deripaska warned this month that Russia is running out of cash. “There will be no money next year, we need foreign investors,” the raw-materials magnate said at an economic conference.
(…) the government’s energy revenue fell by nearly half in the first two months of this year compared with last year, while the budget deficit deepened. The fiscal gap hit $34 billion in those first two months, the equivalent of more than 1.5% of the country’s total economic output. That is forcing Moscow to dip deeper into its sovereign-wealth fund, one of its main anti-crisis buffers.
The government can still borrow domestically, and the sovereign-wealth fund still has $147 billion, even after shrinking by $28 billion since before the invasion. Russia has found ways to sell its oil to China and India. China has stepped in to provide many parts Russia used to get from the West. (…
The fall in exports, tight labor market and increased government spending are worsening inflation risks, the central bank said this month. Russia’s inflation was running at around 11% in February compared with that month last year. (…)
The post-invasion brain drain and last fall’s 300,000-man military mobilization have resulted in around half of businesses facing worker shortages, according to the central bank. Locksmiths, welders and machine operators are in high demand. (…)
Analysts at the central bank have called the postwar reality “reverse industrialization,” suggesting a reliance on less-sophisticated technology. (…) Military production masks the problems. “This isn’t real, productive growth. This doesn’t develop the economy,” Ms. Prokopenko said. (…)
In January and February of this year, however, oil and gas tax revenue, which accounts for nearly half of total budget revenue, fell by 46% year-over-year, while state spending jumped more than 50%. (…)
Rystad Energy, a consulting firm, expects investment in Russian oil and gas exploration and production to fall to $33 billion this year from a predicted $57 billion before the invasion. That would mean less output down the line. Analysts at BP PLC estimate that Russia’s total oil production, which was around 12 million barrels a day in 2019, will be down to between 7 million and 9 million a day by 2035.
“We’re not talking about a one-year or a two-year crisis,” said Mr. Astrov. “The Russian economy will be on a different trajectory.”