U.S. Employers CUT only 11,000 jobs during November 2009, according to preliminary estimates released by the Bureau of Labor Statistics. That figure was stunningly better than the elimination of some 130,000 to 160,000 positions that had been expected by most analysts. Furthermore, downsizing that had been reported at more than 400,000 jobs during the September-October time frame was revised to losses of about 250,000 jobs for the two-month period.
Do these much better-than-anticipated employment numbers point to acceleration in the recovery of the nation’s apartment market? Probably, with the impact likely to show up in two separate ways.
Job stats usually don’t move in a straight line during the initial months of an economic shift, so it wouldn’t be surprising to see monthly losses back at levels of 100,000 or more positions in the immediate future. Still, November’s numbers make it seem possible that job creation may start by March or April, whereas most economists had been expecting the return of positive numbers closer to mid-year. Whether net job formation returns at the onset of Q2 or during Q3 is a big deal for the apartment market because Q2 is a seasonally strong leasing period.
The addition of jobs three or four months earlier than anticipated previously could push up 2010’s total apartment demand tally significantly if the specific months in question are April, May and June. Furthermore, since many local apartment markets will see their last big blocks of deliveries in either Q4 2009 or Q1 2010, demand realized during Q2 2010 could boost occupancy meaningfully.
Good news for the overall economy also could influence what happens with apartment rental rates over the next few months. The typical demand pattern suggests that operators shouldn’t expect to see many leasing prospects coming through the door until prime leasing times return in March or April. Thus, it’s doubtful that further rent cuts over the next few months can generate any sort of occupancy bump. But management teams clearly have had some success buying occupancy with pricing reductions during 2010, so something has to change to get them out of that mindset.
For now, MPF Research forecasts that apartment revenues will fall slightly during 2010, with a mild upturn in occupancy not quite sufficient to fully counter moderate further loss in pricing power. However, if job creation really does return in time for the start of the spring leasing season, a breakeven scenario for revenues in 2010 could be achievable.
Source: Greg Willett, MPF Research