CPI Cools & Renter Demand Rebounds

release edition [079]

read time [8 minutes]

Welcome to The Multifamily Download, a weekly newsletter where I provide institutional insights to help you build an exceptional Multifamily career.

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Today at a Glance:

Building: More, Better, Faster
CPI: The Hike I'm Not Buying
Demand: RealPage Q2 Rebound
Weekly Listen: TreppWire Ep. 408

More, Better, Faster

In last week's TMD 078 newsletter, I shared that I've been building a new underwriting workflow and I asked for your biggest underwriting pain points and bottlenecks so I can make it even better.

To everyone that responded, thank you! Here are five common themes from your responses:

1/ Preparation

Pulling together a presentable investment thesis, overview summary, and memo quickly for the purposes of socializing an investment opportunity with investors or providing thoughtful feedback to a broker or seller to defend pricing is a lot of work.

The fix: This week I built a library of single-click deliverables that are derived directly from the underwriting workflow.

2/ Confidence

Underwriting models have tons of assumptions, and when working together, can make a deal look far better or worse than it should, which leads to false confidence when acquiring and passing on deals that may have been worth pursuing.

The fix: This week I designed and shipped what I'm calling "MultiScore", which is a rules-based and formulaic calculation that grade an individual deal from 0 to 100 to bring an objective and relative value for comparing one deal against another. I'm fired up about this.

3/ Speed

Manual data entry, formatting rent rolls, coding financials, inputing debt terms. All of these are repetitive tasks that require time, energy, and cost real dollars of human capital.

The fix: This week I setup a deterministic engine for parsing and ingesting rent rolls, financials, and offering memos that auto-populate into the underwriting workflow. What used to take an hour or more now takes 30 seconds and a few clicks. After spending thousands and thousands of hours in an Excel model in my career, this new workflow been breathtaking.

4/ Cost

People cost money, and many Real Estate operating businesses don't gain much efficiency in terms of unit costs of human capital when deal flow increases (i.e. buy more deals = hire more people).

The fix: This week I built a deal pipeline with an analytics dashboard, a multi-deal comparison tool, a rent comp library, and even setup an MCP connector from the workflow to your favorite LLM complete with 11 tool calls for querying purposes.

5/ Rent Comps

Sourcing rent comps quickly with confidence is challenging. Paid tools are relying on aggregation data from other paid tools, and these are often stale or incomplete. Nothing beats picking up the phone to call the leasing office, but having a quick workflow to organize the most likely rent comps would be powerful.

The fix: This week I built an auto-parsed rent comp workflow with an AI-finder that pulls rent comps directly from property websites, not aggregator sites, to get as close to the source data as quickly as possible.

I'm excited to share this workflow platform with you soon.

Thank you again for your thoughtful feedback and suggestions!

The Hike I'm Not Buying

Five weeks ago, May CPI printed at 4.2% and the market started pricing rate hikes. I wrote in TMD 074 that the print was an energy supply shock layered on a disinflating Core CPI, and that I expected both Headline and Core CPI to normalize once the Iran oil shock was in the rearview mirror.

On Tuesday, June CPI dropped 0.4% month-over-month, the biggest monthly decline since April 2020, according to the BLS. Headline CPI fell from 4.2% to 3.5% against expectations of 3.8%. Core CPI was flat on the month at 2.6% annually, below the 2.9% consensus. Finally, energy inflation slumped 5.7% in June alone.

Thankfully my prediction from TMD 074 is aging well so far.

I share this for one reason: The consensus may now be making the same mistake in the opposite direction.

Nine of eighteen FOMC participants who submitted June projections expect at least one hike before year-end. Bank of America went further, calling for the Fed to "bring down the hammer" with a series of hikes this year. Chair Warsh, who declined to submit a dot at all, told the ECB Forum in Portugal that "prices are too high."

I think much of this rate hike talk is misguided for a few reasons.

First, the inflation the hawks want to fight is already fading. The June print showed exactly what a supply shock unwinding looks like: energy collapsing, core flat, shelter continuing to decelerate. Raising the Fed Funds Rate cannot drill a single barrel of oil, as I noted in TMD 074.

Second, the labor market is not the pillar that many of the hawks think it is. June payrolls came in at +57K, and April and May revisions erased another 74K jobs, as I covered in TMD 077. Hiking into a softening labor market to fight an energy shock that is already reversing would be fighting the wrong enemy with the wrong weapon, twice.

Third, consider who is talking. Sell-side hike calls generate attention in an otherwise slow summer news cycle. Per my critical thinking filter from TMD 038, always consider how the person sharing a particular view benefits from sharing it (i.e "talking their book").

Futures markets put September hike odds at roughly one in three as of this week, and that number has bounced around all month. My view is that there will be no rate hike in September, and if the August data confirms a softening labor market, the conversation will quickly swing back toward cuts faster than anyone currently expects.

Oh, and the last seed that I'll plant is this: Kevin Warsh has been adamant about the 2% target. My question, as was Claudia Sahm's this week on LinkedIn, is this: "2% of what?"

Summary

June CPI confirmed that the spring inflation surge was an energy story rather than a demand story. The hawkish consensus is now positioned to fight an enemy that is already retreating, while the labor market appears to be weakening further.

Actionable Takeaway

If you're modeling debt scenarios, consider running your refinance and rate cap sensitivity on three paths (hold, one hike, cuts resuming by Q1 2027) and weight them and strategize according to your own house view.

Demand Didn't Get the Memo

While the macro debate rolls on, the data shows that renters keep signing leases.

RealPage released its Q2 2026 data this week: net absorption hit 187,000 units in the quarter, outpacing seasonal expectations. Occupancy climbed to 95.5%, the second consecutive quarterly increase. And for the first time in three years, annual deliveries fell below the decade average at roughly 340,200 units, down from the 2024 peak of 588,000.

Said differently: Demand is holding up while the supply wave is receding. This is the setup I described in prediction #1 back in TMD 052, a weak first half giving way to a second-half recovery. I graded it "tracking" in the mid-year scorecard (TMD 076), and this Q2 data is the strongest evidence yet that it's thankfully still on schedule.

But, there are two asterisks worth noting.

Concessions are still doing heavy lifting as RealPage shows nearly 20% of units nationally offering a concession (most commonly one month free). That's incentivized demand, the risk I first flagged in TMD 033. Occupancy bought with free rent is real physical occupancy, but the revenue only shows up if and when those leases renew at market rents. The Renewal Cliff mechanics from TMD 063 still apply through year-end.

Also, rent growth remains muted at +0.8% year-over-year on effective rents, with the gains concentrated in low-supply markets. The bifurcation between supply-constrained coastal markets and the concession-heavy Sunbelt hasn't narrowed. If you operate in a market still digesting deliveries, your recovery is going to be a 2027 story, as I wrote in TMD 070.

Summary

Q2 was the cleanest fundamentals print of the cycle so far: Strong absorption, rising occupancy, and new deliveries finally below the decade average. But a fifth of the country's units are leasing on concessions, so the revenue recovery will lag the occupancy recovery by design.

Actionable Takeaway

Consider defending occupancy through the summer with defensive renewal offers, especially for residents with in-place gain-to-leases. If the comps are at 95%+ and your submarket's pipeline is thinning, consider testing renewal increases in the 3 to 4% range before you assume the market won't bear them. Track your concession burn-off schedule by month, not by quarter.

Weekly Listen

This week's listen is TreppWire Episode 408 with Lonnie Hendry, Stephen Buschbom, and Hayley Keen. This week's episode covers the softening macro backdrop, New York City rent regulation developments, and a reported high-profile exit from a New York multifamily fund.

The TreppWire team continues to provide one of the best weekly pulses on CRE credit and distress.

You can listen to the full episode here.