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Shelter Component Contributes to Declining CPI
A major component of the calculation method for the Consumer Price Index (CPI) is shelter. Shelter accounts for 30% of the CPI. However, the data is based on continuing leases and not current market rents, so it has a 6-12 month lag. Over the past year, multifamily rents have declined in many markets, and the impact is still not fully reflected in CPI. This suggests that the housing component will contribute to a further decline in the headline inflation number.
Last week’s CPI report showed that inflation was flat month-over-month and up 3.2% over the past year. The market responded quickly and Treasury rates declined by 20 basis points. After peaking just above 5% in October, the 10-year Treasury now sits at 4.5%. In the multifamily market, the bid-ask spread is narrowing and values have declined 5%-10% over the past year. Lower rates combined with better prices should contribute to more deals getting done.
We are continuing to finance a wide variety of requests including 1) construction loan takeout on properties that are in lease up 2) bridge loans to acquire value-add multifamily properties 3) construction loans for BTR communities with favorable deal economics 4) perm loans for stabilized hospitality properties.
By Matthew Kirisits, Director at George Smith Partners. Connect with Matthew at: mkirisits@gspartners.com
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