Holiday Shopping Impacts Apartment Market

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Holiday Shopping Impacts Apartment Market

Increased Spending Means Consumers are Confident

By K.C. Sanjay | Thursday, December 8, 2016

Retail sales during the weekend from Black Friday through Cyber Monday reached record proportions this year, which is positive news for the apartment market.

 

While there is not a direct correlation between Thanksgiving weekend sales and apartment market performance, the 21% increase in Black Friday sales from last year and the 12% increase in Cyber Monday transactions put a spotlight on economic trends that do affect the real-estate universe.

To run it down:

  • Increased sales result from increased consumer confidence.
  • Consumer confidence is up because:
    • Jobs and wages have increased.
    • Investment income is rising.
    • The debt-to-income ratio is falling.
  • More spending correlates to increased Gross Domestic Product.
  • Higher GDP means more jobs.
  • More jobs translates into higher apartment demand, therefore stronger rent growth.

To explain:

 Retail outlets made $3.34 billion worth of sales on Friday, Nov. 25, and online sales totaled $3.45 billion on Monday, Nov. 28, exceeding expectations, according to Adobe. Some analysts believe that portends a 3.5% - 4% increase over 2015 in total holiday sales.

The increased sales are a sign of consumer confidence, which two indexes show is above the long-term average. The Organization for Economic Cooperation and Development Confidence Index was 100.2 in November, just above the long-term average of 100, while the University of Michigan Consumer Sentiment Index was 93.8 in November, above the long-term average of 87 since 1997.

And consumers are confident because they are employed and making more money. The “jobless recovery” is no longer jobless with the unemployment rate hovering around 5%, and wage growth has picked up. 

The Atlanta Federal Reserve Bank’s three-month moving wage-growth average was 3.9% in October, a substantially high rate historically. The Atlanta Fed’s average is higher than the U.S. Bureau of Labor Statistics’ because it is uniquely calculated from multiple sources, including the BLS.

Meanwhile, the stock market is up, improving consumers’ return on their investments, leaving them more disposable income to use for holiday shopping. Also, households’ debt-to-income ratio is decreasing, which also frees up dollars for spending.

All that leads into the impact on the apartment market.

Increased employment and higher wages means fewer housing affordability problems, so renters could afford a higher grade of apartment with desired amenities. While new Class A properties may be priced out of many people’s range, those in Class C properties may be able to upgrade to Class B – if, as Axiometrics expects, wage growth continues at its current pace. 

And, the increased spending during this holiday season could help increase Gross Domestic Product, 70% of which is based on consumption. When GDP increases, so do jobs most of the time, and job growth is the biggest driver of apartment rent growth. 

The result: even though new supply is expected to reach its cyclical peak in 2017, these factors will likely mean stable apartment market performance next year.

So, go ahead and shop confidently this holiday season. The apartment market will thank you. 

 

K.C. Sanjay

K.C. Sanjay

Senior Real Estate Economist

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