Growth in GDP returns for the third quarter. Real gross domestic product increased by a 2.6 percent annualized rate in the third quarter, reversing the declines posted in the first half of the year. This turnaround was predominantly driven by improved net external trade, as exports rose 14.4 percent and imports fell 6.9 percent, a dynamic that is unlikely to continue. Economic concerns abroad and a strong U.S. dollar will weigh on export activity, while the drop in imports — a benefit to the GDP calculation — is nevertheless a signal of weakening domestic consumer demand. Other GDP contributors fell, most notably a 26.4 percent drop in fixed residential investment. Paired with less anticipated government spending, these signals point to more temperate GDP growth in the coming quarters.

Residential sectors undergoing recalibration. The sharp decline in fixed residential investment reflects ongoing challenges in the housing market. While home prices have ceased their upward stride, mortgage rates are climbing rapidly. The average rate on a 30-year fixed mortgage eclipsed 7 percent earlier this month, its highest level since the early 2000s. While these barriers to single-family homeownership will benefit the multifamily sector in the long run by keeping more households renting for longer, the apartment sector is also currently undergoing a normalization. While more rentals were absorbed on net during the year ended March 2022 than in all of 2019 and 2020 combined, leasing has been subdued since. After pandemic-incited lifestyle changes, higher rents and economic uncertainty are now keeping more households in place, contributing to higher vacancy and slower rent growth in the property type for this year.

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* Sources: Marcus & Millichap Research Services; Bureau of Economic Analysis; Bureau of Labor Statistics; CoStar Group, Inc.; Federal Reserve; STR, Inc.; RealPage, Inc.; U.S. Census Bureau