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Market Reporting that Matters

Job Growth Revisions Help Tell Apartment Market Data Story

Some Metros Stronger, Some Weaker

By Louis Rosenthal | Wednesday, April 19, 2017

 

Every March, the Bureau of Labor Statistics releases its revised estimates of employment gains at the national, state, and metro levels to reflect the incorporation of the 2016 benchmarks and the recalculation of seasonal adjustment factors.

Because job growth is the key demand-side variable in apartment market performance, the magnitude and direction of changes in this indicator tell us a lot about what to expect in terms of rent growth and occupancy rates. These revisions often help explain puzzling or unexpected trends in apartment market data.

In some markets, the latest revisions substantially alter our impression of the overall health of a given metro area. Metros such as Atlanta, Austin, Miami, Nashville and San Francisco boasted job-gain revisions that point toward a much stronger market than originally thought.

On the other hand, metros such as Denver, Houston, San Jose, Seattle and Washington, DC featured job-gain revisions that suggest a weaker market than initially thought.

Plotting metro-level job growth (pre- and post-revisions) against Axiometrics’ year-over-year rent growth values helps, in some cases, to explain some of the rent growth changes over the last two years.

Take Denver as an example. Between summer 2015 and early 2016, rent growth in Denver fell by nearly 800 basis points, followed by a brief period of stability before sliding again in the summer of 2016, Axiometrics’ apartment data found. Meanwhile, job growth closely tracked rent growth until late 2015 before slowly growing again through most of 2016. The twin stories of moderating rent growth and advancing job growth didn’t make much sense.



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However, with the latest BLS revisions, the story is starting to cohere: Job growth was on a declining trajectory starting in summer 2015 — around the same time as rent growth began its downward trajectory.

On the other side, take a market like Austin, where the latest revisions seem to contradict our impression of the market’s health. Austin rent-growth rates have been in freefall since January 2016.

 
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The pre-revised job growth numbers appeared to confirm the reality of a market in distress, with a very sharp moderating trend appearing in summer 2016. Unlike Denver, the revised job numbers in Austin at least share a similar trend with the pre-revised numbers; nevertheless, the contraction in job growth was not nearly as severe as we thought.

There must be a cause for the declining rent growth outside of a decline in demand (job growth) that was virtually revised away. The simple answer is supply. Adding the ratio of annual new supply to the inventory base moving monthly shows that inventory growth has remained in the 5% range through late 2016 while demand slowed only slightly. This put downward pressure on rent growth as seen in the data.



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As proof of this, we return to Denver. Rent growth declined beginning in early 2015 as both job growth (demand) declined and inventory growth (supply) edged up. While revised job growth has continued to slow in the Mile High City, rent growth has somewhat stabilized as inventory growth has slowed as well.

 
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Key demand and supply drivers both help tell the story of an apartment market’s performance. Revised or updated apartment data can change the narrative or explain unexpected results.

 

Louis Rosenthal

Louis Rosenthal

Real Estate Analyst

Louis Rosenthal researches and analyzes current apartment trends in the United States and correlates them with economic indicators. He also studies the urban landscape and other metrics to develop in-depth reports and presentations for clients. Louis recently earned his Master of Science in Public Policy, focusing on housing, landuse patterns, real-estate dynamics and economic development. He combines that knowledge with his four years of practical experience in tax analysis, regression analysis and presentations to develop insightful analysis. An accomplished writer, Louis’ work has appeared on Forbes.com and Axiometrics’ blogs, among others.

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