Rising Consumer Confidence Boosts Apartment Demand

Article originally posted on Globe St. on December 21, 2023

Consumer confidence and apartment demand trend together, according to a new report from RealPage.

When consumers feel good about the economy, apartment demand makes notable strides.

The University of Michigan’s Consumer Sentiment Index is a monthly survey that measures how Americans feel about spending money and the confidence they have in the future of the economy.

In 2022, consumer sentiment hit near 30-year lows as inflation climbed to a 40-year high and the Federal Reserve started hiking interest rates to combat that increase.

“While the economy was actually in good standing, it didn’t feel that way to consumers, who were paying more and more in interest rates throughout the year,” according to the report.

Things have been much better in 2023 with consumer confidence rising, inflation easing and the future looking more stable.

“While consumer sentiment is not as high as it was before the pandemic, it’s at least on its way up once again,” RealPage said. “As a result, household formation has improved, bolstering apartment demand.

Individuals’ confidence in their personal financial situation is making a difference, according to Brad Case, Chief Economist, Middleburg Communities.

He tells GlobeSt.com that empirical research has shown that one of the most important factors in encouraging people to form new households.

“The local unemployment rate is also a useful measure, but consumer confidence is what it’s all about,” Case said. “When confidence improves, people are willing to sign leases. It’s as simple as that.”

Anthony Tiritilli, president of development for residential real estate company Lynd, tells GlobeSt.com that there is no question that consumer confidence is closely correlated to apartment demand but perhaps not as directly as it is to retail sales.

“The difference being that, for the most part, apartments are filling a consumer need whereas most nonessential retail is filling a want,” Tiritelli said.

During uncertain times, a renter may stay in a Class B property for longer rather than moving to Class A and taking on a larger rent obligation, he said.

David Goss, co-founder and managing principal, Interra Realty, tells GlobeSt.com that demand for apartments is already high, so rising consumer confidence should only increase demand.

“As housing isn’t a discretionary expense like shopping or travel, it generally isn’t directly affected by consumer confidence – but good news always makes things better,” Goss said.

“Renters with a healthier outlook may seek to trade up, causing an increase in demand across the board. One thing is certain: rising consumer confidence, along with falling long-term interest rates, should contribute to a healthy outlook for the investment in apartment buildings.”

Scott Meyer, co-Founder and CFO of PTM Partners, tells GlobeSt.com that rising consumer confidence and having 30-year mortgage rates in the mid-7% range equates to renting being much more attractive than buying.

Michael L. Webb, counsel, Farrell Fritz, P.C., tells GlobeSt.com that although there may be a correlation between consumer confidence and apartment demand, other variables and factors also contributed to this increased demand in 2023.

“With home ownership becoming more and more expensive in 2023, renting is increasingly attractive and necessary for many consumers, accounting for increases in apartment demand,” Webb said.

“Also, the housing market is currently characterized by low housing inventory, rising home prices, and high mortgage and interest rates. These market forces have forced many consumers to prioritize renting until there is a greater sense of equilibrium in the housing market and prices and rates ‘cool.’

“One could argue that a decreased sense of confidence and stability in the homeownership has caused an increased reliance on the rental housing market and demand for apartments.”