According to a 2022 study, the U.S. needs to build 4.3 million more apartments by 2035 to meet the demand for rental housing. During 2021-2022, constrained supply led to a 25% increase in rents. Despite falling home values and declining mortgage rates, the relatively lower cost of renting should support near-term apartment demand. However, the threat of a recession and declining consumer confidence may contribute to a slowdown in household formation.

Harvard’s Joint Center for Housing Studies suggests that future household formation is likely to be driven by population growth rather than increases in headship rates, with the declining U.S. birth rate potentially impacting in the long term. Despite healthy job growth and low unemployment, wage growth slowed in December and may temper inflation. It remains to be seen if the pace of wage growth will slow enough to bring inflation down to the Fed’s 2% target, and if wages will experience a rapid decline without additional layoffs. A perception of stability in near-term economic conditions will be crucial for a renewed cycle of household formation.

The apartment industry is currently facing potential difficulties, according to RealPage CEO Dana Jones. Jones, who recently took on the role and has met with numerous apartment operators, spoke at the RealWorld "The Pursuit of Excellence" users conference in Las Vegas about her observations and concerns. She acknowledged that the market is currently hot, but uncertainty surrounding inflation and economic conditions is causing worries. Jones cited past eviction moratoriums, discussions about rent control and resident screening, and difficulties in finding workers as contributing factors to the potential slowdown in growth. Jones also mentioned that budgeting for 2023 is becoming a challenge for companies, as they struggle with rising payroll expenses, insurance costs, and property taxes. These issues are leading to tighter margins and a greater focus on budgeting for next year. The apartment industry, including Landmark Capital, is turning to market-driven solutions, particularly through advancements and innovation in property management software. RealPage technology is leading the multifamily housing industry and providing support for onsite teams during a potential slowdown. By leveraging artificial intelligence (AI) and machine learning, Landmark Capital is automating mundane tasks, leading to rethinking of staffing models and a focus on centralized operations. This is allowing companies to improve their 100:1 staffing ratio to about 150:1, as well as add more experienced personnel. Furthermore, AI is providing predictive and prescriptive solutions, allowing companies to become proactive rather than reactive when running their business. Landmark Capital's lead management solution helps  increase revenue by focusing on leasing activities that produce the most value. It is specifically designed to help make the most of out time by organizing and prioritizing the sales funnel, keeping leads more manageable, and converting more leads to prospects.

Good news for the economy as inflation falls and the Fed nears the end of its tightening cycle. Bond yields and mortgage rates have also lowered, bringing potential buyers back into the market. However, negative ISM readings, surging credit card debt, and warnings from CEOs have placed us on "recession watch." The hope remains that the Fed will thread the needle and the economy will experience a mild recession. Stay informed with the latest economic updates.