Navigating the Shifting Rental Market Part 2 with Jay Parsons

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The macro backdrop: Volatility meets resilience

We opened with the macro picture: trade tensions easing, bond yields bouncing, and inflation data offering mixed signals. Jay emphasized the “uncertainty” defining today’s climate. While CPI looks more favorable after adjusting for shelter costs, the Fed remains cautious. There’s a quiet tug-of-war between policymakers and market expectations, but Jay believes the case for rate cuts is building, especially if shelter-driven inflation continues to moderate.

More hens, more housing, and the CPI illusion

In a lighter moment, I shared a favorite anecdote on egg prices. Spoiler: it’s not Powell or Biden’s fault. The real culprit is the avian flu, which wiped out 150 million chickens. Jay and I used this to draw a parallel: housing, like eggs, faces real supply shocks that drive up prices, regardless of policy narratives.

Multifamily vs. office: Different worlds, different demand

Unlike the office sector, where demand closely relates to return-to-work mandates, multifamily demand has proven broad and resilient. As Jay explained, apartment leasing rebounded faster than office occupancy in cities like New York because people move for lifestyle, not just jobs. Meanwhile, Sunbelt markets continue to dominate absorption, even as construction slows.

Construction is plummeting, and undersupply is inevitable

Jay’s data is clear: construction starts have collapsed, even as deliveries remain high. That divergence sets the stage for a new era of undersupply. Markets like Dallas and Houston will see completions normalize by year-end, while others like Austin will lag further. For owners, the future looks strong. If demand holds up, supply won’t catch up anytime soon.

Absorption proves the demand story

Contrary to some bearish narratives, the Sunbelt isn’t oversupplied. It’s absorbing record volumes. Jay broke down how lease-ups are capturing the demand, keeping vacancies elevated but not empty. In Q1 alone, Dallas absorbed over 10,000 units, more than double that of New York. Absorption is happening; it’s just more dispersed across new projects.

Migration normalization, not slowdown

A key takeaway from Jay: Sunbelt migration has normalized post-COVID but remains well above historical averages. Some markets like Miami and Charlotte are still booming, and overall, affordability keeps the Sunbelt competitive. Even without immigration, domestic migration and natural growth keep population trends positive.

The single-family affordability trap

A powerful visual we discussed shows the cost of owning vs. renting since 2020. In short, home prices and mortgage payments have skyrocketed, while rents rose moderately. That gap, once a homeowner’s gain, is now a renter’s burden. Jay noted that unless mortgage rates drop sharply or builders ramp up production (neither is likely soon), multifamily demand is locked in.

Market fragmentation counters the monopoly myth

When policymakers point fingers at large landlords, Jay’s data tells a different story. Even the biggest apartment owners control less than 0.5 percent of the market. The industry is deeply fragmented—unlike grocery, banking, or tech—and still open to new players. Claims that institutional ownership is driving up rents simply don’t hold up.

Capital pressure: Sell or deploy

We wrapped with a look at capital flows. Fundraising is way down, but pressure is rising to deploy dry powder or return unrealized gains. That trillion-dollar standoff will soon break, especially as competitive deals draw in sidelined investors. As spreads tighten, Jay and I both agreed: sitting on the sidelines waiting for better rates might be a missed opportunity.

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