The private credit craze/Rents/Credit/Pushing back on rate cuts/Other

What is hotter than private credit right now in picking out an asset class? Everyday I get multiple fund offerings in my email inbox with the same sales pitch, 'with banks pulling back the lending reigns, we'll step in and give you equity like returns.' Imagine the other side of that trade though, the business that has to pay 13-15% on a loan. Speaking today at the FT Global Banking Summit in London, the UBS Chairman Colm Kelleher said "There is clearly an asset bubble going on" in private credit and "What it needs is just one thing to trigger a fiduciary crisis." Now bubbles can last for years but understand money is flooding into private credit and while some will make prudent underwriting decisions, many won't. 

The new Apartment List National Rent Report is out this morning and they said rents fell .9% m/o/m in November as the "seasonal slowdown continued this month." They say 'seasonal' because around the winter holiday things slowdown in the apartment business as people aren't looking to move right now. The y/o/y change is down 1.1% but "the national median rent is still nearly $250 per month higher than it was just three years ago." On the supply side, "our national vacancy index stands at 6.4%, slightly higher than the pre-pandemic average" and they said, as we know, "with the construction pipeline of new apartments still near record levels, we expect that there will continue to be an abundance of vacant units on the market in the year ahead." 

In terms of rental breadth, they fell in 89 of the country's 100 largest cities m/o/m and are down in 68 of them y/o/y with the "sharpest rent declines over the past year...concentrated in California markets like Oakland, San Francisco, and Long Beach, where apartment demand remains sluggish."

Year to date new rents are little changed, up .2% which compares with the spike of 18% in 2021 thru November and compares with the average of 2.9% in the three years between 2017 and 2019. Bottom line, rental growth will pick up again in the spring seasonally but it's obvious the deceleration is here and which will eventually flow thru the CPI data. Again though, while inflation here will further cool in 2024, we are setting ourselves up for a reacceleration in the years after. That said, markets we know only care about the here and now and renters will certainly appreciate the slowdown when mortgage rates are above 7% and affordability to buy a home is tough.