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NAA Inflation Tracker: July 2021

NAA Inflation Tracker

CPI, Latest Release, June 2021 5.3%

The Consumer Price Index (CPI) rose by 5.3% on a year-over-year basis while prices excluding food and energy (core CPI) rose 4.5%.  CPI hit higher levels during the Great Recession, but we have to go back to the 1990/1991 recession to see a level of growth this high for core CPI.

The Federal Reserve is standing by its position that inflation will be transitory and when breaking it down by category, it’s easy to see why. Prices for used cars and trucks were responsible for more than one-third of the all-items increase, up 62% year-over-year. Prices also increased substantially for new vehicles, airline fares and apparel. These are all tied to the reopening of the economy, which while occurring in phases, is a one-time event, a fact which should help alleviate fears of long-lasting inflation.   

Alternative Measures of Inflation, June 2021

The Federal Reserve Bank (FRB) of Atlanta uses measures of inflation it refers to as “Flexible CPI” and “Sticky CPI,” basically categorizing CPI components by price volatility. Goods and services with sticky prices, considered a more forward-looking approach and estimated to comprise 70% of headline CPI, do not typically respond to changing market dynamics quickly – think rent, education and public transportation. Flexible prices change far more frequently and often wildly – think gas, food and hotels.

In June, flexible price CPI increased 13.7% on a year-over-year basis while sticky price CPI increases remained unchanged from the prior month at 2.7%, in line with the 2019 monthly average of 2.6%.

Alternative Measures of Inflation, May 2021

The Personal Consumption Expenditures (PCE) Index is the measure of inflation the Federal Reserve Bank uses in its policy decisions. It is produced by the Bureau of Economic Analysis and uses different formulas, different weights and has a different scope compared to the Bureau of Labor Statistics’ (BLS) CPI. 

In May (the most recent data available) the core PCE rose 3.4% year-over-year, the highest increase in nearly 30 years, but tempered somewhat from the prior month’s growth. At its current rate of 3.4%, it would take 8 months for the PCE to achieve a five-year average of 2%, the Fed’s long-term target.

The Producer Price Index (PPI), May 2021

The BLS aggregates all construction inputs excluding capital investment, labor and imports for single-family and multifamily construction. Price increases for multifamily construction inputs have exceeded 10% for the past five months and soared to 26.5% in May on a year-over-year basis.

Wage Growth, June 2021

Private sector wage growth rose to 3.6% in June, in line with pre-pandemic levels. Breaking it down by sector reveals 7.1% growth in leisure and hospitality and 6.2% growth in retail trade. Wage growth is reflective of not only pay increases, but also signing bonuses as employers struggling to find workers provide extra incentives in order to stay competitive.  It is important to note that real average hourly earnings (earnings adjusted for inflation) for all employees decreased 0.5% from May to June.

What to Watch in the Next Month

  • Jerome Powell’s Semiannual Monetary Policy Report to Congress takes place on Wednesday, July 14 and inflation is sure to be the focal point of the Fed chairman’s testimony.
  • The recent decline in lumber prices should be evident in next month’s PPI data, so look for increases to multifamily construction inputs to ease somewhat.
  • The Employment Cost Index (ECI), a quarterly wage growth measure considered to be superior to average hourly earnings by some analysts and economists, will be released on July 30. The ECI is closely watched by the Fed.


Next Tracker: August 11, 2021

July 13, 2021
Apartment Market Pulse
Optimism Springs Eternal

U.S. Apartment Market

Spring 2021

Rising rental rates and rampant leasing activity during Q1 2021 indicated that the multifamily housing market is turning a corner. Pent-up demand driven by employment growth and the widespread distribution of the coronavirus vaccine was evident. Increasingly, more renters are becoming comfortable with moving to a new apartment home. According to RealPage, effective rental rates moved from $1,411 in Q4 2020 to $1,421 during Q1 2021. Lower-cost markets with limited apartment stock continued to thrive and outperform major markets. As reported by REIS, San Bernardino, Chattanooga, Memphis, Sacramento and Lexington recorded the highest effective rent growth levels during the first quarter. While gateway markets are starting to see hints of a bottoming pattern emerging, they are still among the nation’s laggards for rent growth. San Francisco, New York City, San Jose, Washington, D.C. and Oakland posted annual rent growth declines ranging from -6.6% to -14.8%.

Despite robust demand, apartment occupancy did not see any gains. Instead, occupancy levels inched down 0.1 percentage points to 95.5%. This signals that concessions offered by apartment owners attracted more existing renters than prospective renters. Properties tracked by Entrata reported that concessions were nearly 30% higher year-over-year as of February. According to REIS, Columbia, Greenville, Salt Lake City, Albuquerque and Knoxville were the leading markets with shrinking vacancy rates year-over-year. Markets that posted the greatest increases in vacancy included Washington, D.C., Charleston, Minneapolis, Raleigh and Louisville.

Similar to Q4 2020, apartment demand kicked off 2021 with repeated strong performance. RealPage reported that 353,453 annualized units were absorbed, far outpacing the 315,789 units that came online during Q1 2021. Sun Belt markets including Dallas (3,566 units), Miami (3,227 units), Austin (2,923 units), Orlando (2,593 units) and Phoenix (2,462 units) recorded the greatest absorption.

According to Census, the seasonally adjusted annual rate for multifamily construction starts in February 2021 amounted to 372,000 units, a decline of 27.6% percent year-over-year. Units completed increased slightly by 2.8% to 314,000 units. Multifamily building permits significantly increased by 24.1% to 495,000 units. The top-ranking markets for permits issued during February 2021 included New York (6,821 units), Austin (5,206 units), Los Angeles (3,562 units), Washington, D.C. (3,464 units) and Dallas (3,284 units). With 652,000 multifamily units in the pipeline across the U.S, competition for renters will continue to be fierce, particularly among the class A stock.

U.S. Capital Markets

Apartment deal volume began the new year at muted levels. As reported by Real Capital Analytics, closed apartment sales transactions during Q1 2021 totaled $25.1 billion, down 36.6% from the same time last year. Investors exchanged 154,000 units, 38.2% less than February 2020. Multifamily values remained steady; the average price per unit increased to $182,300, up by 4.9%. The average cap rate was 4.9%, down by 45 basis points. Garden-style asset sales totaled $17.9 billion during Q1 2021, while mid-/high-rise properties totaled $7.9 billion. Los Angles, Phoenix, Dallas, Atlanta and New York City were the top markets for deal activity during the first quarter. Morgan Properties and Olayan Group partnered together for a massive transaction, acquiring 14,414 units in 11 states for $1.7 billion from STAR Real Estate Ventures. 

U.S. Economy

In March, the Employment Situation Report published by the Bureau of Labor Statistics (BLS) turned in its strongest performance since the height of last summer with 916,000 jobs added. Upward revisions to January and February translated into an additional 156,000-job gain. Pandemic job losses remained elevated at 8.4 million. Initial claims for unemployment also remained high by historical standards, but have begun to moderate somewhat, coming in below 750,000 for three consecutive weeks ending April 3.

BLS job openings data for February also revealed a revitalized labor market as states and jurisdictions began lifting restrictions amid increased vaccinations. Just under 7.4 million positions were available at the end of the month, a level that is in line with 2018-2019. Job openings in the healthcare and social assistance industry, as well as the leisure and hospitality sector, experienced the greatest monthly increases.

The ramp up in vaccinations, the passage of the $1.9 trillion American Rescue Plan (ARP) and other strong economic indicators caused many economists and analysts to substantially increase their employment and GDP forecasts, most of which exceed 5% in 2021. Some of the larger investment firms are forecasting 2021 GDP growth in the 8% range, a rate of growth not seen since 1950. The Federal Reserve has one of the more optimistic forecasts for the labor market with a 4.5% unemployment rate projected by the end of 2021.

The number one risk to the economy, according to the most recent outlook survey from the National Association for Business Economics (NABE), is a variant of the coronavirus against which the vaccines are ineffective. It garnered an overwhelming 67% of responses, compared to the second and third highest risks: Slow vaccine distribution and fiscal policy inaction/policy gridlock, at 10% each. It is important to note that the survey was conducted prior to the passage of the ARP and that the greatest upside risk to the economy was a large fiscal stimulus program.


It will be a close race between vaccinations and COVID-19 infections, both of which were increasing in early-to-mid April. Even with rising cases, many jurisdictions are easing restrictions by increasing capacity at restaurants, shops and event venues and opening in-person learning to more students. The Transportation Security Administration reported the highest air passenger traffic since the pandemic began, with 9.5 million passengers passing through TSA checkpoints during the week ending April 17, 2021. Life is beginning to look more normal for many Americans and surges in optimism as well as pent-up demand are clearly revealing themselves in economic data.

As job growth becomes even stronger, an increase in household formations can be expected as younger cohorts leave family residences and workers become more mobile again. The continued run-up in house prices, low supply and increasing mortgage rates will temper the for-sale market, resulting in healthy demand for apartments, particularly in suburban locations in the South and West. While it appears that gateway cities have hit bottom, supply and demand imbalances will prolong their recoveries. And until rental assistance dollars are fully distributed, risks remain for small property owners and their residents.  


With COVID-19 cases higher in some states than they were in April and May—originally anticipated to be the peak—the pandemic is far from contained in the United States. Until consumers and businesses alike hear some good news about containment, treatments and vaccines, fits and starts can be expected to plague economic activity.

Between consumers’ savings and additional income, it should come as no surprise that rent collections being reported by several property management firms for institutional-grade properties remained strong through July. But the combination of dwindling savings and the supplemental federal unemployment insurance expiring at the end of July bodes poorly for rent collections in September and beyond.

June 21, 2021
Special Reports
NAA Inflation Tracker

While most economists and analysts expect rising inflation to be a temporary phenomenon, concerns continue to mount from businesses and consumers alike. With that in mind, the National Apartment Association (NAA) is launching an inflation tracker to keep its members informed and help them cut through noisy data—a result of uncharted territory created by the pandemic.  

CPI, Latest Release, May 2021 4.9%

On a year-over-year basis, the Consumer Price Index (CPI) rose by its highest rate since 2008. It is important to note that part of this increase stems from the base month comparison of May 2020, when the Index was still declining in the wake of pandemic shutdowns.

Core CPI, which excludes volatile food and energy prices, rose to its highest level since 1992. Of the core components, some of the largest price increases were for used cars and trucks, car and truck rentals, airfares and car insurance. Demand for some of these items one year ago was nearly non-existent and prices adjusted accordingly. In the case of the auto insurance industry, many companies lowered their premiums to reflect decreased auto usage among those no longer commuting to work. In the case of used cars and trucks, demand has increased due largely to the semiconductor shortage plaguing the auto industry.

Alternative Measures of Inflation, May 2021

The Federal Reserve Bank (FRB) of Atlanta uses measures of inflation it refers to as “Flexible CPI” and “Sticky CPI,” basically categorizing CPI components by price volatility. Goods and services with sticky prices do not typically respond to changing market dynamics quickly – think rent, education and public transportation. Flexible prices change far more frequently and often wildly – think gas, food and hotels.

FRB Atlanta estimates sticky price goods and services comprise 70% of headline CPI and says these prices present a more forward-looking approach to inflation. Not surprising, sticky price CPI is a smoother data series over time, and between 2014 and December 2020, has consistently been above 2%. 

Alternative Measures of Inflation, April 2021

The Personal Consumption Expenditures (PCE) Index is the measure of inflation the Federal Reserve Bank uses in its policy decisions. It is produced by the Bureau of Economic Analysis and uses different formulas, different weights and has a different scope compared to the Bureau of Labor Statistics’ (BLS) CPI. 

Although the two often track closely, April (the most recent data available) was the first time PCE rose above the Fed’s 2% long-term average target since December 2018. CPI, on the other hand, rose above 2% for 15 months during that same time period. At its current rate of 3.1%, it would take 11 months for the PCE to achieve a five-year average of 2%.

The Producer Price Index, April 2021

While lumber prices grab all the headlines, the BLS aggregates all construction inputs excluding capital investment, labor and imports for single-family and multifamily construction. Price increases for construction inputs have experienced double-digit growth for three consecutive months for both housing sectors.

Wage Growth, May 2021

Wage growth has been nothing but volatile during the past 14 months, spiking to 8.2% in April 2020, a reflection of lower-wage workers losing their jobs - and plummeting to just 0.4% in April 2021 as lower-wage workers were re-employed. Wage growth in May was moderate at 2% as lower-paying jobs continued to be filled. With job openings at an all-time high and widespread reports of hiring challenges across industries, more substantial increases in wages are expected in the coming months.

What to Watch Next Month

CPI began to increase again in June 2020, so base effects should start to ease. However, the timing for resolutions of supply-chain bottlenecks remains an unknown. And with summer upon us and the U.S. inching ever closer to 70% of its population being at least partially vaccinated, demand for goods and services is expected to stay elevated, resulting in further price pressures.

Next Tracker: July 13, 2021

June 11, 2021
, Research, Apartment Market Pulse
Winter 2021: The Resilient Apartment Sector Enters an Uncertain Year

U.S. Apartment Market

After exhibiting signs of revitalization during Q3, the apartment market ended 2020 with a mixed performance. Both occupancy and rents descended, yet absorption stood closer to pre-pandemic levels. Difficulties from the coronavirus pandemic and typical seasonality challenged market fundamentals. As reported by RealPage, U.S. occupancy dropped slightly by 0.2 percentage points year-over-year to 95.6%, although returning to the same rate as Q1 2020. Occupancy declines varied also from market to market. According to REIS, Lexington, Albuquerque, New Haven, Dayton and Wichita were among the strongest markets for occupancy growth year-over-year. Meanwhile, Washington, D.C, Louisville, Fort Lauderdale, Fairfield County (Conn.) and Raleigh saw the highest increases in vacancy.

Rental rates further declined as properties competed against each other for the shrinking pool of renters. Effective and asking rents averaged $1,383 and $1,453, respectively, both falling 1.4% since Q4 2019. Comparing 2020 to 2019, rent growth fell by an astonishing 3.1%. The robust drive toward smaller markets persisted given that many renters have chosen to migrate away from major markets. According to REIS, Lexington, Memphis, Chattanooga, Las Vegas and Sacramento ranked highest for rent growth. Major East and West Coast markets such as San Francisco, New York City, San Jose, Washington, D.C. and Oakland continued their downward trends for rent growth. However, there is optimism that the rollout of the vaccine and subsequent economic boost will restore multifamily demand for some gateway markets. RealPage projects that rental rates will likely return to pre-pandemic levels by the end of 2021, and then begin to increase by the end of 2022.

Apartment demand delivered a remarkably solid performance during the fourth quarter given the challenges of 2020. The fourth quarter brought total annual absorption to 344,380 move-ins, higher than the 2019 quarterly average of 279,494 move-ins. RealPage reports that Dallas, Atlanta, Houston, Phoenix, Denver and Charlotte led the nation for apartment demand during 2020. New construction totaled 296,115 annual units, below the 2019 quarterly average of 325,801 units. Since many delayed projects from 2020 are near completion, more than 403,600 units are expected to come online during 2021. 

According to the U.S. Census Bureau, the seasonally adjusted annual rate for multifamily construction starts in December 2020 amounted to 312,000 units, a considerable decline of 40% year-over-year. Alternatively, total deliveries increased by 5% to 422,000 units. Multifamily building permits decreased 7.8% to 437,000 units. The top-ranking markets for permits issued during 2020 included New York (40,283 units), Houston (15,796 units), Austin (18,799 units), Los Angeles (15,796 units) and Dallas (15,133 units).

U.S. Capital Markets

Multifamily investments rallied at the end of the year. According to Real Capital Analytics, 6,945 properties totaling 325,345 units sold during the quarter for $55.4 billion. This was a considerable improvement in activity from the previous quarter. However, the fourth quarter still revealed a decline of 27.1% in investment sales activity compared to Q4 2019. The average price per unit increased to $188,477, up by 2.6%. The average cap rate was 5%, down by 113 basis points. Garden-style asset sales totaled $36.2 billion during Q4 2020, while mid-/high-rise properties totaled $19.2 billion. Dallas, New York City, Los Angeles, Atlanta and Phoenix were the leading markets for deal activity during 2020. Radco Companies pulled off the biggest deal of the fourth quarter. The real estate developers sold four properties to Sunstone Properties Trust, Phoenix Realty Group, Bridge Investment Group and TruAmerica Multifamily totaling 1,656 units for a combined $242.8 million. The properties that were traded are garden-style assets located throughout Florida markets.  U.S. Economy

Although GDP rebounded nicely in the fourth quarter, the labor market continued to struggle. After job declines numbering 227,000 in December, just 49,000 jobs were added in January. That leaves 10 million jobs lost to the pandemic, half of which are expected to be permanent, according to Moody’s Analytics. The retail trade and leisure/hospitality industries have been disproportionately impacted during the pandemic. During the past three months (November-January) leisure/hospitality has shrunk by 587,000 positions as total non-farm payroll employment across the U.S. increased by 86,000. The unemployment rate in January dropped to 6.3% due both to the job additions as well as a decline in the number of people in the labor force. 

Weekly filings for unemployment also showed no signs of a turn-around, with initial claims consistently above the highest pre-pandemic levels. As of mid-January, approximately 17.8 million people were filing for some sort of unemployment benefit compared to only 2.1 million a year prior.

The good news heading into February was that COVID-19 cases and hospitalizations were down, while the bad news came by way of new variants spreading, some of which may be vaccine-resistant. As with many indicators throughout the pandemic, there is a wide range of variance among sectors and geographies. The Moody’s/CNN Business Back to Normal Index tracks 12 high frequency data series plus monthly employment figures, using February 29, 2020 as the baseline for “normal.” At the national level, the daily index ranged between 81 and 82 for nearly a month as overall activity died down after the holidays and inclement weather kept many indoors. The discrepancies and activity were evident in state-level data, with Florida operating at nearly 92% of normal levels while New York lagged at 70%. It is important to note that while uncontrollable factors such as weather affected the Index, so too did various levels of state and local restrictions, vaccine distribution, COVID-19 cases and basic demographics.


The vaccine rollout, despite its many limitations, along with the $900 billion stimulus package passed at the end of 2020 brought optimism to business leaders, economists and analysts. Many organizations, including the Board of Governors of the Federal Reserve System, lifted their GDP forecasts and lowered their unemployment rate forecasts for 2021 and 2022. There seems to be little doubt, however, that the first quarter of this year—perhaps extending into the first half—will be challenging as the virus remains largely uncontrolled.

The rental housing industry also remains bifurcated with many of the market indicators discussed in this report mainly reflective of larger, institutional-grade, professionally managed properties that overshadow the plight of small, independent owners. Without more assistance from government and other entities to help cover rent shortfalls amid eviction moratoria, these owners could be forced out of business. And should the economic recovery slip, these impacts could easily bubble over into larger segments of the market.

Paula Munger, Assistant Vice President of Industry Research and Analysis and Leah Cuffy, Research Analyst are both from NAA.

February 24, 2021