Your February Newsletter from CALCAP!

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February 2022

Principal's Corner

Interest Rates and the Invasion of Ukraine

The 10-year U.S. Treasury yield has remained relatively stable since Russia launched its military offensive against Ukraine on February 24^th. The yield fell as low as 1.85% on Thursday, but ended the week at 1.97%, only marginally lower than the recent highs just above 2%. This conflict comes at an interesting time as the Fed has announced the start of tightening monetary policy beginning with the March FOMC meeting.

Economists are bracing for the Fed to start raising interest rates amid current geopolitical uncertainty and inflation at a 40-year high. The current sentiment is that the central bank will raise rates by at least a quarter-point next month, but probably not the 50-basis point increase that some had anticipated. The current conflict means that Fed will have to be even more cautious and tolerate higher inflation. "An extended war in Eastern Europe could lead to higher global energy prices and higher U.S. inflation, forcing the Federal Reserve to tighten monetary policy aggressively, and higher interest rates could become a larger headwind for the U.S. economy," said PNC chief economist Gus Faucher.

Many economists agree that the Fed should have acted sooner and will now be forced between the ugly choices of slamming on the brakes, or letting inflation run. Balancing these two factors will be critical in navigating the U.S. economy away from a recession. The markets will be on high alert next week at President Biden delivers his State of the Union Address on March 1^st.

Edward M. Aloe

Founder and CEO

626-229-9057

Latest Headlines...

RealPage: U.S. Apartment Occupancy Ticks Upward

Effective asking rents for new leases see 15% increase year over year.

“Occupancy rates have never been this high and for a very practical reason—normal turnover,” said Jay Parsons, vice president and head of economics and industry principals at RealPage. “People move out, others move in. There’s usually some time in between leases where the unit is marketed as available. That’s not really happening today. When renters give notice to move out of a unit, another prospective renters swoops in to lease the unit before the current resident even moves out.”

According to RealPage, the key drivers behind the demand for apartments as well as all other types of housing, including for-sale homes and single-family rentals, are household formation, low unemployment, and wage growth.

“We’re asked all the time about the impact of the for-sale housing market on apartment demand, and its impact tends to be significantly overstated,” said Parsons. “Yes, some renters are staying longer because they’re unable to buy a house. But apartment managers are telling us that’s only a small piece of the pie. The bigger driver is rapid household formation among young adults, whose first step as independent householders is usually to rent.”

View Article Here

January Sees Solid Rent Gains

Yardi Matrix: The average U.S. asking rent rose $8 to a record $1,604.

On a month-to-month basis, U.S. asking rents increased 0.5% in January, a 40-basis-point increase from the previous month. However, according to Yardi Matrix, the monthly figures were inconsistent. The gains were led by San Jose, California, which along with San Francisco are the only markets in which rents are still below pre-pandemic levels. Previous rent growth leaders Phoenix and Las Vegas came in at -0.1% last month, but Yardi Matrix cautions that “while it’s too early to say those metros are cooling, growth can’t stay at current levels forever.”

On the single-family rental side, asking rent growth inched down slightly month over month. However, it grew by 13.5% year over year through January. Tampa and Miami led year-over-year rent growth, increasing more than 30%, followed by Atlanta and Phoenix.

“Demand remains strong, driven by households that want more space and amenities such as yards for pets and small children to play,” stated Yardi Matrix.

View Article Here

Just before Ukraine invasion, mortgage rates fall to 3.89%

Rates could fall quickly following Russia's invasion of Ukraine

The average 30-year-fixed mortgage rate averaged 3.89% for the week ending Feb. 24, down three basis points from the prior week, according to Freddie Mac‘s latest mortgage survey.

“Even with this week’s decline, mortgage rates have increased more than a full percent over the last six months,” said Sam Khater, Freddie Mac’s chief economist. “Overall economic growth remains strong, but rising inflation is already impacting consumer sentiment, which has markedly declined in recent months. As we enter the spring homebuying season with higher mortgage rates and continued low inventory, we expect home price growth to remain firm before cooling off later this year.”

At this time last year, the 30-year fixed-rate mortgage averaged 2.97% and originators were pumping out near-record volume, largely due to the strength of refinancings. Today, refis have mostly dried up and originators are desperately slashing costs to rescue falling margins.

View Article Here

On the lighter side....

About CALCAP Advisors

About CALCAP

California Capital Real Estate Advisors, Inc., and its affiliate entities (CALCAP Asset Management, CALCAP Properties, CALCAP Lending, CALCAP Senior Healthcare and CALCAP Strategic Opportunities, collectively known as “CALCAP”), is a California based investment company founded and 2008 and headquartered in Pasadena, California. The Company sponsors alternative real estate investment opportunities focused on demographically driven housing. CALCAP has been able to consistently provide both individual and institutional investors with outstanding returns over the last 12 years. The Company uses a highly selective and disciplined investment approach, focused on delivering superior risk-adjusted returns. CALCAP currently has over $400mm in Assets Under Management. To learn more visit www.calcap.com.

Social Mission

CALCAP CARES is a 501(c)(3) private foundation organized to encourage employees to find a way to give back to the neighborhoods where we invest. CALCAP has created "GiveTime4Autism" as its initial program which will allow employees the ability to donate unused vacation and sick days for a very worthy cause.