Low Consumer Sentiment Affecting Apartment Demand
The good news is it appears consumer sentiment reached its trough a few months ago.
Consumer sentiment readings have negatively impacted household formation, which in turn, has affected apartment demand, as well as having other implications in commercial real estate.
Marcus & Millichap’s John Chang said investors must not confuse “consumer confidence” with “consumer sentiment.” The latter is a measure of a person’s finances.
“People are concerned about inflation and recession risks,” Chang said. “That’s sentiment. When sentiment is low, they are less likely to rent a new apartment, buy a new house, or purchase furniture or electronics.”
His thoughts were part of Marcus & Millichap’s research video “How Consumer Sentiment Impacts CRE.”
Consumer Sentiment Reading Moving Higher
Chang said the “good news” for CRE is that it appears consumer sentiment hit its trough a few months ago and is moving higher. Recently, it rose from 50 to 67.
“We need to be in the 80s for it to boost household formations,” Chang said. “It’s going in the right direction.”
Chang offered three things that need to happen to keep it going: progress in controlling rising inflation; the Fed needs to constrain to four 25 bps hikes in 2023; and consumers need to get past their feelings of recession risk.
“If nothing goes horribly wrong, then apartment demand will increase,” Chang said. “A revival is inevitable, maybe in the second half of 2023 or early 2024.”
Chang said investors are wise to “get a step ahead and get in now, thinking long-term, while others are stuck in the current cycle.
“I’ve seen it many times, those who take proper action are the ones who kept their eyes on the horizon.”