Rents/Tariff impact rest of yr & some other earnings comments/PMIs/JGB yields new high

I'll start with rents just two weeks before the Fed will cut interest rates and we debate what they'll then do thereafter. Last week the August Apartment List National Rent Report, in case you missed it, said "The national median rent dipped by .2% in August, and now stands at $1,400. This was the first m/o/m decline since January, and marks the beginning of the rental markets off season. It's likely that we'll continue to see further modest rent declines through the remainder of the year."

Versus last year, new rents are down .9%. The vacancy rate is at 7.1% which is the highest since Apartment List started this survey in 2017 and "We're past the peak of a multifamily construction surge, but a healthy supply of new units are still hitting the market, and vacancies are still trending up." I'll add, most of this supply is coming from the sunbelt states with Austin, Texas being the weakest market followed by Denver (not sunbelt but most others are), Phoenix and Tucson. The best rental markets are on the coasts that have seen less supply growth. For example, San Francisco is now the best market with rental rates up 4.7% y/o/y, playing catch up. Overall, "Units are taking an average of 29 days to get leased after being listed, up one day from last month's reading, and down from a high of 37 days in January."

Not in this report but from what I heard from the publicly traded REIT's, renewal rates are running at about 3-4% so the blended rental growth rate is about 1-2%. This is below what the CPI and PCE are telling us but again, keep in mind that CPI and PCE never captured the high growth rates seen in rents at the peak in 2022. Also, while the rate of change in rent growth has clearly slowed, new rents are still up 22% from January 2021 and why consumer confidence levels for many are still at low levels with this being the biggest annual cost for those renting.

The bottom line on where the rental market goes from here, Apartment List said "With construction expected to slow further in the second half of this year and into 2026, conditions are likely to shift, but it will still take time for the market to metabolize the recent growth in the rental stock." I expect rent growth to stabilize in the first half of 2026 and expect rents to start rising again in the back half of 2026.

While the average 30 yr mortgage rate fell another 5 bps w/o/w to 6.64%, purchase applications fell by 3.1% after a 2.2% rise in the week before. While these numbers seasonal adjust, maybe the end of the summer had back-to-school on most minds and also the busy selling season has come to an end. Refi's were up about 1% w/o/w.

On to some calls and what Petco Health & Wellness, a stock we own, said on Thursday in their call is a reminder that the back half of 2025 will be more impactful for some with regards to tariffs. This as the inventory now being sold include the tariffs while the previous inventory sold was procured pre-tariffs. "So, we had almost no tariff impact in Q2 (the quarter just reported). There was some, but let's call it rounding. As we go to Q3, it becomes meaningful and then it becomes even much more meaningful in the fourth quarter."