Location Strategy Chartbook 081724

This year, the federal government is on track for a 6.7% shortfall, up from 6.3% last year, according to the nonpartisan Congressional Budget Office. Deficits are projected to equal or exceed 5.5% of GDP every year out to 2034 in the CBO’s June outlook.

“Since at least 1930, deficits have not remained that large for more than five years in a row,” the CBO warned.

History shows the value of the Fed remaining independent. Weighed down by debt, Latin American nations including Argentina, Brazil and — spectacularly — Peru turned to printing money, fueling hyperinflation. Peru’s hit a cumulative estimate of 2 million percent.

In the US itself, then-President Richard Nixon in the early 1970s famously pushed the Fed chair of the time, Arthur Burns, into easier monetary policy, triggering a costly inflationary boom-bust cycle.

Dollar-denominated money market fund assets hit a record high last week.

1 in 5 college educated men under the age of 25 neither employed nor actively looking for work.

That contrasts with the data for female graduates, which show their participation rate holding broadly steady over the past few years. One big reason is that they’re more likely than men to turn to part-time work or take jobs they’re overqualified for to support themselves. They have slightly lower rates of underemployment than their male colleagues, a Burning Glass Institute report found, possibly because they find creative ways to kick-start their careers.

Nationally, Single-family housing starts -15% year-over-year

Multifamily (+5 units) starts -22% year-over-year

San Antonio multi family construction starts are falling off a cliff this year

Developers broke ground on LESS THAN 800 units through June

Construction starts were near zero during the first quarter, signaling an impending supply cliff of new apartments on the horizon. Luxury apartments are plentiful, and rents are stagnant. Tenants in San Antonio can lease a four- or five-star apartment for significantly less than a comparable unit in another major American city.

Last year, population growth from domestic migration was higher in San Antonio than in any other large metropolitan area in the United States.

The city of San Antonio added more people to its ranks between mid-2022 and mid-2023 than any other city proper

Newly Built Properties Compose Nearly Half of Phoenix Apartment Sales So Far This Year

Merchant Developers Remain One of the Valley’s Most Active Sellers

Nearly $2 billion worth of Phoenix multifamily assets traded in the first half of 2024, a roughly 70% decrease from the record highs seen in 2021 and 2022. However, the sales volume of newly built properties — those that sold within two years of delivery — is down just 10% from the peak and has composed about 47% of first-half apartment sales volume this year.

More than $40 billion of office loans were in distress at the end of the second quarter based on data from MSCI, which is around three times the value of distressed apartment loans.

But the pool of apartment mortgages that could get into difficulty in the future is larger—$80.95 billion are at risk of distress, compared with $66.87 billion for offices. These loans are flashing amber because occupancy rates are falling or the income generated by the buildings is barely enough to meet interest payments, says Alexis Maltin, a vice president at MSCI Research.

Interest-rate cuts alone won’t bail out all these owners, as debt costs would need to fall very sharply to give them meaningful relief: In 2021, the secured overnight financing rate, which is typically used to price these floating-rate loans, was around 0.05% compared with 5.33% today.

And the properties aren’t bringing in as much cash as hoped. Strip out the impact of costlier debt and 46% of CRE CLO loans still aren’t generating the net operating income that was baked into the loan underwriting

Despite the US housing market’s tendency to go through booms and busts over the decades, the Federal Reserve’s aggressive monetary tightening cycle in recent years hasn’t produced the kind of downturn that might have been expected, a Dallas Fed study shows.

One thing that helped was greater resilience of the US banking system, which faced stricter regulation in the aftermath of the great financial crisis, Enrique Martínez García and Lauren Spits wrote Tuesday. The quality of mortgages also played a role, they said — the pre-crisis incentive structure for speedily originating loans and then dumping them into asset-backed securities market was no longer present.

Sustained job growth with historically low unemployment was another key factor, García and Spits wrote. If the soft landing continues, where unemployment rises but remains historically low, that “would arguably also continue to support the housing market while improving affordability through sustained income growth,” they wrote.