Tucked away into recent updates to the FOMC’s Summary of Economic Projections is a subtle shift in where and when policymakers expect long-term interest rates to land. Since the Federal Reserve began rate hikes in March, average interest rate forecasts, as informed by the FOMC’s "dot plot," have climbed in both magnitude and consensus. The committee’s average projection for the “terminal rate” of interest, the rate at which inflation normalizes, and the committee stops their increases— has climbed from an average forecast of 2.38% at the March 2022 Fed meeting to an average forecast of 5.13% as of the December 2022 meeting. The shift reflects policymakers’ growing hawkishness and harmony as inflation has proved more difficult to get under control. Understandably, as consumption continued to flourish through the summer and fall, while price pressures held despite tighter credit markets, policymakers took a more aggressive posture to rebalance the scales. Members are also starting to agree more. At the March meeting, just 25% of FOMC members surveyed held a consensus view on where rate hikes could terminate. Consensus grew to 33% by June and stands at 51% as of December. In an interesting twist, it appears that as the battle against inflation intensified, members became more clear-eyed on the challenge that they faced —and the tools needed to fight it. In another shift, the committee’s forecast for the longer-run federal funds rate has also ticked up over the last few projections. In March, the average forecast for longer-term interest rates was 2.25%, albeit the consensus forecast was cast by six members, while a separate five projected a longer-term rate of 2.5% at that time. As of the December projections, the average forecast for longer-term rates sits firmly at 2.5%, supported by nine committee members, with the second-closest member total coming in at just four who forecast a 2.25% long-run rate. While the committee appeared to react to recent evidence of easing US inflation by reducing their rate increase from 75 to 50 basis points in December, their outlook has grown increasingly hawkish at the same time. The reduced rate hike should help dampen fears from doves who are worried that The Fed is ignoring disinflationary signals. However, in a commitment to hold rates higher for longer if needed, the commitee has signaled that it is willing to stay in the fight for as long as it takes.

According to the latest release of the Bureau of Labor Statistics’ Consumer Price Index, the average price of goods and services are up 7.1% from one year ago through November 2022. While the headline data describe economy-wide inflation for the average consumer, personal inflation rates can look much different depending on if someone rents or owns their home. To estimate these differences, Chandan Economics recalibrates the so-called "basket of goods" for each group, removing renting-related costs for homeowners and owning-related costs for renters. Further, the methodology assumes a 0% primary residence cost inflation rate for fixed-rate homeowners, as the amount they pay on their mortgages does not change from month to month. (For a full breakdown of the methodology, see here) Taking all the above together, Chandan Economics estimates that the adjusted CPI inflation rate for renters was 7.1% in November 2022, falling directly in line with the headline inflation rate and falling 0.7 percentage points from a month earlier. Meanwhile, the adjusted CPI inflation rate for fixed-rate homeowners totaled just 4.8% over the same period, declining by 0.8 percentage points month over month. Notably, while both groups are still experiencing higher-than-average inflation levels, renters experienced the brunt of pricing pressures in the past year and have seen conditions improve more slowly. As a result, the spread between Renter and Fixed-Rate Homeowner personal inflation rates reached 2.3 percentage points in November— a new record high.[1] Between 2014 and 2020, the personal inflation rate for renters averaged 1.1 percentage points higher than for fixed-rate homeowners. Moreover, this differential remained consistent, never dropping below 0.9 percentage points or rising above 1.2 percentage points. In the months ahead, assuming the Federal Reserve continues to regain control over price stability through monetary tightening, the personal inflation rates for renters and homeowners alike should continue to fall. However, as explored in a recent analysis with our research partner Arbor Realty Trust, CPI for rent often lags behind changes in market pricing. Consequently, even as inflation rates are expected to improve across the board, renter inflation should hold higher for longer, creating more substantial inflation spreads between renters and fixed-rate homeowners. [1] Only considers data since 2000.

According to the latest release of the Bureau of Labor Statistics’ Consumer Price Index, the average price of goods and services are up 7.7% from one year ago through October 2022. While the headline data describe economy-wide inflation for the average consumer, personal inflation rates can look much different depending on if someone rents or owns their home. To estimate these differences, Chandan Economics recalibrated the so-called "basket of goods" used to weight the overall price index. For the renter estimation, components relevant to homeownership are stripped out. For homeowners, naturally, rental costs are removed from their basket. Our analysis goes one step further and reconsiders housing costs for homeowners. While the BLS’s owner’s equivalent rent index is meant to track housing market prices, it is a theoretical measurement and is not a cost incurred by homeowners. For homeowners with fixed-rate mortgages, their direct housing costs (i.e., paying their mortgage) are the same this year as it was last year. In other words, their inflation rate for this component would be 0%. Taking all the above together, Chandan Economics estimates that the adjusted CPI inflation rate for renters was 7.8% in October 2022. Meanwhile, the adjusted CPI inflation rate for fixed-rate homeowners totaled just 5.6% over the same period. Notably, while both renters and homeowners are still experiencing higher-than-average inflation levels, the spread between the two has never been wider than today.[1] Between 2014 and 2020, the personal inflation rate for renters averaged 1.1 percentage points higher than for fixed-rate homeowners. Moreover, this differential remained consistent, never dropping below 0.9 percentage points or rising above 1.2 percentage points. As of the October 2022 observation, this spread has increased up to 2.2 percentage points. In the months ahead, assuming the Federal Reserve is successful in its effort to regain control over price stability, the personal inflation rates for renters and homeowners alike should continue to fall, as they have in recent months. However, because CPI for Rent often lags changes in market pricing, renter inflation should hold higher for longer, creating more substantial inflation spreads between renters and fixed-rate homeowners. [1] Only considers data since 2000.

The Conference Board’s Consumer Confidence Survey, which reflects prevailing business conditions and likely developments for the months ahead, dropped for the second consecutive month in November. However, diving into these numbers shows a bit of mixed reality. Within the present situation index, a subset of the headline index, there was an increase in both “good” and “bad” assessments of conditions— made possible by the survey’s “Good,” “Neutral,” and “Bad” methodology. Conversely, reviewing the expectations index subset, which looks six months into the future, optimism improved mildly while pessimism dropped by a slightly larger degree. These mixed signals could add a dose of optimism to a gloomy forecast. However, interestingly, consumers are growing more downbeat about future labor market and income prospects. According to the expectations index, 21.4% of respondents anticipate fewer jobs, a rise from 20.8% in October, while the share of consumers expecting more jobs to be available fell by 0.9%. Meanwhile, 16.6% of consumers expect their incomes to decrease, up from 15.2% in October. Just 17.2% of consumers expect their incomes to rise, down from 19.6% last month. The mixed messaging arriving from these data echoes the complex nature of our ongoing economic environment. Market-based inflation expectations have risen to their highest level since July, which, despite upbeat labor market results in recent months, is likely weighing heavier on consumers’ minds than job market indicators. After all, the everyday consumer more easily notices changes in their purchasing power, but not so much abstract changes in the macroeconomy. The notion that consumers will selectively overweight or ignore key pieces of information is supported by Conference Board Senior Director of Economic Indicators Lynn Franco, who credits a recent rise in gas and food prices as the main catalyst to the fall in confidence. Confusing the overall picture even further, however, retailers are reporting a record-high in online Black Friday sales this year, demonstrating that actual consumption remains robust. In the immediate term, it will be worth observing if and how current results from the expectations index will impact future movement in the present situation index. In theory, the expectations index serves as a leading indicator for the present situation index, a relationship that has generally held true since the beginning of the pandemic.

Residential rents have risen substantially as inflation surged for other essential items like food and gas, raising the importance of housing affordability issues across the U.S. In a recent conversation with Matt Henry of Chatham Financial, Chandan Economics’ founder, Dr. Sam Chandan, discussed the macroeconomy and considerations for commercial real estate. Tempering an otherwise bullish outlook for multifamily is some short-term unease for economic woes related to an economic slowdown and housing affordability as a central concern. Inflation rose by 8.2% year-over-year in September 2022, according to the Bureau of Labor Statistics’ (BLS) Consumer Price Index (CPI). However, official government data might be somewhat understating inflation. The Penn State/ACY Alternative Inflation Index (which replaces the BLS' housing methodology with data from MSCI) shows inflation slightly higher than official government data in August 2022. As part of the discussion, Dr. Chandan mentions, "…rent increases as a significant driver of the national inflation and not just at the local level, is something we really see as pervasive. There are many markets in Florida, in Texas, even in some of the mountain states, that historically we would have been able to very, very credibly characterize as highly affordable markets.” Data from the recently published Waller, Weeks, and Johnson Index shows that rentals in 97% of the metros tracked are currently renting with at least a 5% premium. Further, 36% are renting at over a 10% premium relative to what would be expected based on modeled data as of August 2022. Though the list includes obvious candidates, such as New York City (15.8% premium) and Austin (13%), it also lists some unsuspecting metros, such as El Paso, TX (14%) and Lakeland, FL (13%). There are some markets around the U.S. where both residents and elected representatives are starting to push back against the affordability deterioration, including the introduction of rent controls and zoning changes. Rent control could have mixed effects by providing benefits to existing tenants. Still, it could also cause unintended consequences such as a decline in property values and misdirected benefits to higher-income tenants. However, “…when we look at this though, the supply constraint that we face in multifamily is the real issue.” The estimates of the size of the housing supply gap vary from 1.6 million to 3.8 million to 7 million, according to Mark Zandi of Moody's Analytics, Up for Growth (a nonprofit research group), and the National Low-Income Housing Coalition respectively. A June 2022 Chandan Economics-Arbor Realty Trust analysis covered the progression of statewide zoning reforms and discussed successful up-zoning changes that boosted housing stock in Portland, OR, and Tysons, VA (a Washington DC suburb.) It also discusses some evidence that solutions favoring zoning reforms could be gaining steam. California, Massachusetts, and Maine all recently passed zoning code reforms, and the White House proposed an expansion of Low-Income Housing Tax Credits and incentives for jurisdictions that reform land-use policies. Affordability concerns are unlikely to abate quickly, even if income constraints start to create some demand destruction for rental properties. Additionally, the ability to pay rent on time could be exacerbated in the short term by negative labor market performance should unemployment begin to rise. In line with concerns over short-term weaknesses, a Chandan Economics analysis of on-time payment rates and unemployment benefits shows changes in on-time payments are negatively correlated with both labor sentiment and outcomes. Should the U.S. see sustained levels of unemployment, Chandan Economics would expect some deterioration in on-time payment rates. The path to housing affordability relief is uncertain as policy interventions like rent regulation and zoning continue to be debated across state and local governments. Cyclical pressures resulting from a recession are likely to dampen the outlook for lower-income and young people as inflation and rising debt levels eat into consumer budgets.

Prior to the August updates of both the Consumer and Producer Price Indices (CPI & PPI), futures markets were already predicting another 75-bps hike at the Federal Reserve’s September meeting, in part set up by a robust August jobs report and recent statements by FOMC officials. After a higher than expected 8.3% annual CPI reading in August, prophecy will likely become fate. In the background of the committee’s policy decisions has been a growing debate about what the Fed can and should do. While there is a broad consensus that taming inflation is, and should be, a high priority, some argue that rate hikes have not been aggressive enough. Meanwhile, others are concerned that aggressive tightening could come at the expense of one of the strongest labor markets in decades. While this debate plays out, the Federal Reserve has sent some clear signals about which risk it is willing to take on. References to the labor market have largely taken a backseat in FOMC press releases and public statements in recent months, while officials have intensified their rhetoric in an effort to anchor future policy expectations. In a September 7th interview with CNBC, Fed Vice Chair Lael Brainard proclaimed that ”we are in this for as long as it takes” in the fight against inflation, adding to a chorus of increasingly hawkish statements from Fed officials recently. The central bank's disposition here points to a fight not only against inflation but against public doubt in its ability to conduct effective monetary policy. Fed officials are keenly aware that they have made errors over the past couple of years, causing a few sudden course corrections. From a risk to the Fed’s credibility standpoint, the question of whether to risk over-tightening or under-tightening is likely an easy assessment for Central Bank. After months of signaling that they are determined to bring down inflation, even at the cost of economic growth— If the Fed does too much, they are just doing what they told us they might have to. However, it significantly undercuts their credibility if they do too little and inflation rages on. While short-term monetary policy is in front-of-mind for investors and the public, protecting their long-term ability to influence financial markets means they will favor being too hawkish over too dovish. It should come as little surprise then that markets reacted pessimistically to the August CPI numbers, despite a 75-bps hike largely being priced in beforehand. Still, there is a separate third risk at play— what if monetary policy alone cannot bring inflation down? Part of this concern stems from the debate around identifying the leading cause of today's unrelenting price pressures. High inflation isn't just a domestic issue; it's a global one—which supports the reasoning that pandemic-induced supply chain and labor market disruptions are a foundational cause. If supply constraints are the main culprit, then monetary policy could have little impact since policy tools target demand factors rather than supply ones. Further, the War in Ukraine has added even more fuel to the fire, as global food and energy prices skyrocket in reaction to both supply shortages and Western economic sanctions. Domestic gas prices have fallen in recent weeks, but the fact remains that policymakers have little-to-no impact on food or energy price levels, which are top-of-mind concerns to the public. However, the inflationary story is far more complex than global supply chain issues. A recent analysis by The Federal Reserve of San Francisco found that core inflation in the United States grew sooner and more quickly in 2021 than the OCED nation average. In their analysis, the authors help explain excess inflation in the US by pointing to another common culprit— a boom in consumer demand that was kicked into gear by federal stimulus efforts. Suppose the excess inflation experienced by the US is indeed demand-driven rather than supply-driven; it would be reasonable to expect Fed tightening to have at least a moderate impact on price pressures. Still, if excess demand was caused by fiscal stimulus, there is reasonable suspicion that it cannot be tamed through monetary tightening alone. Helping officials is some evidence that tightening is working. Since April, the first full month this year where interest rates stood above 25 bps, month-over-month inflation (core-PCE) has fallen to an average of 4.7% per month compared to an average of 5.1% in the four months prior (though core-CPI in August was just 20 bps below its March rate). Further, while housing prices remain elevated, homebuying demand has declined significantly. New home sales in July alone cratered by 12.6% month-over-month, reaching their lowest level since 2016. Still, over the same period, we have seen global supply chain pressure fall and commodities prices swing from a year-to-date peak in May before swinging back towards pre-pandemic levels—with just a tepid deceleration in consumer spending. Both factors fall outside of the scope of the Fed’s impact, challenging the assumption that monetary policy is the driving force of decelerating inflation. One thing is for sure—the Fed is pushing forward with its plans, as it should since pivoting could be devastating to its ability to influence markets in the future. Nonetheless, they may be getting some aid from supply-side forces bending towards their goal while continuing to feel a thorn in their side from Vladimir Putin's Ukraine ambitions. Only time will tell if their approach is the right one.

Key Findings 18.8% of people not looking for work are on the sidelines due to family responsibilities, an increase of 6.7% from two years ago. 15.5% are not looking due to schooling or training, also a 6.7% shift from two years ago. Collectively, these data reflect an uptick in family formations in the aftermath of the early-pandemic and normalizing college enrollments. The labor market has done little to waver from its position of strength in recent months, even as economic headwinds have swirled. There are more jobs open than unemployed workers to fill them (nearly a 2-to-1 margin). Part of the reason labor supply has failed to satisfy hiring demand is the remaining shortfall in labor force participation— a phenomenon caused both directly and indirectly by the pandemic. The labor force participation rate (LFPR) has continued to improve gradually over the past year, ticking up and average of 0.1 percentage points per month. However, the LFPR remains down from where it entered the pandemic by another whole percentage point. Here, utilizing data from the Census Bureau's Current Population Survey (CPS), we will examine why some out-of-work Americans voluntarily choose to sit on the sidelines of the labor market. From Newborns to New School Years Family responsibilities are the single largest specified reason people have chosen to disengage from the labor market.[1] Nearly 1-in-5 people (18.8%) that have chosen not to look for work in the past four weeks meet this description. Over the past two years, there has been a sizable shift towards this family responsibilities rationale for staying out of the labor market. Family responsibilities were the cause of 12.1% of disengagements in August 2020, with the share rising by 6.7% through August 2022. Notably, an increasing share in this family responsibilities category against an improving labor market backdrop should be expected. While economic conditions partially influence family formation decisions, other reasons for not looking for work are far more sensitive to cyclical pressures. However, what is surprising is that family responsibility disengagements are not just rising relative to other categories— they are doing so in aggregate. Approximately 907k people were not looking for work due to family reasons in August 2022, 164k more than two years ago. 'Family responsibilities' is one of only two categories to see an aggregate increase over August 2020 levels. The only other category to see large upward jumps in the past two years was “in school or other training.” As of August 2022, these upskilling individuals accounted for 15.5% of people not looking for work— a 6.7 percentage point shift from two years ago. Moreover, an additional 209k people fall into this category today than they did in August 2020 The largest declines over the past two years can be seen in the “believes no work available in area of expertise” and “Couldn't find any work” categories, which dropped off by 276k and 314k people, respectively. These declines reflect broad improvements in the labor market and the continued state of fervent hiring demand. Takeaways The relative and aggregate increases of working-age adults choosing schooling over a paycheck may be a welcome sign for reclaiming pre-pandemic normalcy. Students who enrolled in higher education for the Fall 2020 and 2021 terms had to consider the likelihood of campus-level COVID outbreaks and an altered collegiate experience. These data suggest that decisions on whether to attend school in Fall 2022 are motivated by a more traditional set of factors. The uptick and potential workers claiming "family responsibilities” as a reason for not looking for work is interesting in a historical context. The crude birth rate fell by 9% between 2008 in 2010, continuing a steady pattern of accelerated declines during economic downturns. If these labor market data are any indication, the 2020 pandemic recession was unique in this regard, as many quarantines started with two people and ended with three. [1] “Other” category removed from chart, accounted 32.4% of people not looking for working in the past four weeks.

In short... not a whole lot. The recent signing of the Inflation Reduction Act will introduce significant changes to climate, energy, and health policy— but what impact, if any, will the new law have on housing and Commercial Real Estate? In short answer, not a whole lot. Affordable housing efforts, which had some bipartisan and industry buy-in, had largely fallen out of focus in the late push by congressional Democrats to pass the reconciliation bill. Early versions of the White House’s 2023 budget sought to expand the Housing Choice Voucher Program, housing and community development investments, and other efforts to boost the housing supply. In the end, a one-page summary of the law’s details notably excludes any mention of “housing” or “commercial real estate,” and the noted policy proposals were excluded from the version signed by President Biden. A $1 billion grant program to make affordable housing more energy efficient made it into the bill’s final version alongside tax credits to incentivize homeowners to replace older energy systems. However, much of the potential impact on the industry concerned a proposed change in the tax treatment of real estate transactions. A proposal to close what is known as the carried interest loophole remained a key revenue source in the spending bill up until the eleventh hour of its passing in the US Senate. The provision was removed to gain the support of Senator Kyrsten Sinema (D-AZ), whose vote was needed for the party-line bill to pass. The National Association of Realtors and other industry trade groups opposed the proposed change. Provisions instituting a corporate minimum tax and strengthening tax enforcement replaced the carried interest proposal as the primary revenue generator of the final law. While much of the CRE industry welcomed the removal of the tax changes, including a corporate minimum tax will still have an impact, albeit one that is more limited. An analysis by the Tax Foundation estimates that the real estate, rental, and leasing industry could see a net tax increase of 12.7% due to a new eye toward book income. Still, the passing of the Inflation Reduction Act effectively closes the door on this congress’ potential to make significant housing or commercial real estate policy changes. Concerns remain high around the nation’s housing supply issue. Some efforts, including bipartisan bills introduced in both the House and Senate, remain at play in congress, but with the election season approaching, legislative momentum is likely to stall as we close the year. The focus now shifts to state and local efforts to boost housing supply, such as zoning reforms and HUD funding made available for local projects.

A Chandan Economics analysis of the relationship between Google searches, unemployment insurance (UI) claims, and on-time payment rates indicate that both sentiments for unemployment prospects and actual unemployment may be harmful to on-time payments. Based on this analysis, Chandan Economics expects that outcomes in on-time payments will be tied more closely to labor market performance instead of other stresses stemming from increased cost pressures around the economy. As displayed in the Chart below, there is a -73% correlation between monthly on-time payments and the monthly average for searches for “unemployment benefits.” That figure jumps to 90% when we compare the previous month’s searches to the current month’s on-time payments. A similar trend is observed for initial UI claims nationally. The data show a moderate -53% correlation between the monthly average initial claims and on-time payment rates. During the depths of the pandemic, UI and stimulus checks played a role in helping keep renters afloat. A Freddie Mac analysis found that income received from stimulus checks and UI (state and federal) was, on average, around median renter incomes. However, Household Pulse Survey data from April 2021, a month after the last stimulus check, show that 25% of renters using UI benefits to meet spending needs were still behind on rent, with the corresponding figure for stimulus checks being around 16% – suggesting that government benefits can only go so far in supporting renters’ payment ability. While the labor market has held up reasonably well despite the US entering a “technical recession” between Q12022 and Q22022, splinters are starting to show. Sentiment as indicated by the Conference Board’s Present Situation Index and Expectations Index, decreased by a concerning amount in June and July 2022. The four-week moving average for UI claims has risen steadily to 249K in mid-July 2022 from a multi-decade low of 171K in early April 2022. Also shaking some confidence in the labor market is a wave of layoffs and hiring slowdowns being announced by tech firms. A rise in unemployment on top of increasing inflation could bring some additional strain to renters. 28% of renters using UI benefits to meet spending needs in the last week are not caught up on rent, according to the latest Household Pulse Survey that took place from June 29-July 11, 2022. AT&T also reports that consumers are paying their bills more slowly. On the other hand, unemployment indicators (Google searches for “Unemployment Benefits,” "continuing and initial claims," etc.) are still relatively low, household balance sheets remain somewhat robust, and rent tends to be a high priority on the “to-pay” list for consumers. For these reasons, Chandan Economics expects that absent a significant increase in unemployment, we will not see on-time payment rates dip back to the pandemic lows of just above 70%.

Over the past year, the timeliness of rent payments has steadily improved as households recover from pandemic-related financial stress. However, when analyzing payment trends at different rental price points, tenant performance varies. According to Chandan Economics’ April 2022 Independent Landlord Rental Performance Report, mid-priced rental units have performed the strongest in recent months. For units that are charging $1,500-$1,999 per month—the middle tier in our analysis— on-time rent payments stood at 83.2% through April 15th — the highest level of performance of any grouping in the Chandan Economics-RentRedi data set. Units with monthly rents below $1,000 maintained the lowest average on-time payment rate as of the April 2022 preliminary estimate, coming in at 77.9%. With limited exceptions, these lowest-price rental units have consistently held lower on-time payment rates than the rest of the independently operated rental housing market. These sub-$1,000 monthly rent units tend to have lower household incomes and lower credit scores in their tenant mix. According to the US Census Bureau’s Household Pulse Survey, there remains significant anxiety for low-income renters in their ability to pay rent. Lagging performance in the higher-priced segment of the market may come as a surprise but has nonetheless held true. Just 80.4% of units with monthly rents above $2,500 paid their rent on time this month— 226 bps and 289 bps lower than units charging month rents of $2,000-$2,499 and $1,500-$1,999, respectively. A potential explanation for the underperformance of higher-priced units may be due to the presence of more roommates. The same logic of lower credit quality and household incomes renting at lower rental price points cannot be so easily applied at higher price points with multiple renters in the same unit. On-time payments across all tracked units, irrespective of price, ticked down slightly in April to 79.4%. This was the first month-over-month decline in the on-time rate since October 2021. To stay up to date on payment performance for independently operated property units, subscribe to our monthly report here.

A significant laggard at the beginning of the pandemic, independent landlords in Gateway markets (New York, Los Angeles, San Francisco, Washington D.C., Houston, Dallas, Chicago, and Boston) have seen their on-time collection rates rise back in line with rates seen elsewhere. Gateway Markets’ on-time collection rates were consistently 12-16 percentage points below units elsewhere at the onset of the pandemic, but preliminary data for March 2022 show an average of 81.4%, just 0.6 percentage points below non-Gateway markets. The improving environment in Gateway markets is indicative of the far-reaching effects of housing market growth in recent quarters. The S&P CoreLogic Case-Shiller 10-City Composite Home Price Index, which includes 6 of the 8 metros listed above, reported a 17.53% year-over-year increase in home prices for the 12 months ending in January 2022. While the 10-city index also includes traditionally non-Gateway markets such as Las Vegas and Miami—which have enjoyed much of the Sun-Belt-centric growth that we have discussed in detail in a previous article— the index’s broad increase reflects how nationwide supply-demand conditions have facilitated upward price pressure across the board. The increase in home values naturally trickles down to rent prices as discussed by the Dallas Fed. As small landlords in Gateway markets reposition their assets to take advantage of the friendlier rent environment, tenants may face less flexibility when it comes to the timeliness of payments. As a result, on-time collection rates in these markets should continue to improve.

The Census’ latest population tallies indicate burgeoning population growth in the Sun Belt’s largest metros (population = >1M) relative to the rest of the country. Most of the largest metros in the Northeast and West Coast are either stagnating or outright declining. Results are mixed in the Midwest. Of the 26 largest metros in the Sun Belt, 18 increased their population counts— the same could be said for just 12 out of 30 in the rest of the country. The top 10 fastest-growing metros are all located in the Sun Belt. Austin (2.3%) and Raleigh (2.0%) topped the list followed by Jacksonville (1.6%), Phoenix (1.6%), and San Antonio (1.4%). Changes in the population totals are observable in the strong rent increases recorded in Zillow’s Observed Rent Index. According to the index, between 2020 and 2021, monthly average rents increased by the following: · Austin (13%) · Raleigh (11%) · Jacksonville (16%) · Phoenix (19%) · San Antonio (9%) The bottom 5 on the population growth list are all coastal cities with relatively high costs of living. If the stagnant recovery in office usage in Gateway coastal metros like San Francisco (-2.5%) and New York (-1.3%) continues, it will likely keep population growth somewhat subdued compared to the rest of the country. Rent growth in San Francisco was essentially flat, while growth in New York and San Jose (-2.2%) were 1% and -1%, respectively. A somewhat similar trend of weakness in the Northeast and coastal California regions and strength in the Sun Belt can be observed when looking at metros with under 1 million residents. Some metros with sizable population declines in the Sun Belt have economic fortunes anchored to industries (such as oil) with volatile, boom-and-bust track records. Midland, TX, and Odessa, TX, for example, are situated in the Permian Basin and Texas’ oil and gas employment saw a substantial decline at the beginning of the pandemic and it still has not recovered. Florida on the other hand is a different story, with a top-performing metro in every population category. Population growth in The Villages, FL made headlines last year when it was announced as the fastest-growing metro in the country between 2010 and 2020. Its growth will likely continue to outpace national growth rates in the future, owing to its growing retirement community and the amenities that spring up around it. The population growth seems to be spilling into home prices. According to Zillow’s Home Value Index, in 2021, average home prices grew by the following: · Punta Gorda (23%) · Naples (21%) · Lakeland (18%) · Ocala (16%) · The Villages (5%) (Note: Data were unavailable for Cape Coral) Another trend that will be interesting to watch over the medium-term is the strong showing among metros in Utah and Idaho. Perhaps it’s no surprise given that they topped the list in state-level population growth, but it is still unclear how long the trend will continue. However, the states benefit from a low-cost of living compared to more expensive and relatively close coastal markets on the West Coast. St. George’s, UT was the fastest- growing metro in the country with a 5.1% population growth between 2020 and 2021.