Inflation and Supply Chain Worries
After a strong and optimistic Q2, the unexpected surge in the COVID Delta variant delayed business re-openings and slowed recovery in Q3. Supply chain bottlenecks as well as rising prices and costs are adding headwinds to the recovering economy. The forecasting firm Oxford Economics released recent projections downgrading their forecasts for the year. After a disappointing jobs report in August, the firm moved back the date by which 2020 job losses would fully return to pre-pandemic levels from the second quarter of 2022 to the third quarter of 2022.
The labor participation rate edged lower in September as more people exited the labor force. Fear of potential COVID exposure was cited as well as a shortage of qualified job applicants reported by employers. There are currently 11 million open positions unfilled! The 194,000 jobs added in September was the lowest number this year and far below expectations. The unemployment rate was 4.8% (this represents the commonly used U-3 rate which only considers people actively seeking a job) at the end of Q3. The number of unemployed persons fell by 710,000 to 7.7 million. However, these numbers still remain above the February 2020 levels of 3.5% and 5.7 million. If you consider the U-6 rate (which includes all unemployed, under-employed and discouraged workers—considered by some a better jobs number), the real unemployment rate stood at 8.5%.
Federal Reserve Chair Jerome Powell is still sticking to the story that current inflation is “transitory,” insisting that the economy would trend to full employment and inflation would return to the Fed’s 2% long-term goal. At the recent Fed conference in Jackson Hole, WY, Powell mentioned “inflation” 89 times in a speech titled “Monetary Policy in the Time of COVID.” The Consumer Price Index increased 0.4% in September and the US Bureau of Labor Statistics reported that the index was up 5.4% over the last 12 months. The energy index rose 24.8% over the last year and the gasoline index increased an astounding 42.1% over the last 12 months. Used cars and trucks are up 24.4% over the last year. Billionaire hedge fund manager Paul Tudor Jones believes that inflation is here to stay and poses a “major threat to the US markets and economy.” Jones said the trillions of dollars in fiscal stimulus is the impetus for inflation to run hotter for longer. The Federal Reserve has added over $4 trillion to its balance sheet, while the US government has approved over $5 trillion in monetary stimulus.
Supply chain disruptions also continue to be a key theme in the economic recovery. Companies are navigating around shortages from construction materials to semiconductors and everything in between. The global impacts of the health crisis continue to be the major cause to these disruptions as many countries around the world continue to have restrictive governmental measures affecting manufacturing and shipping. According to the Institute of Supply Management (ISM), firms continue to face severe supply constraints with supplier wait times increasing and prices rising. Transportation restrictions and severe port congestion due to labor shortages is also adding to these disruptions.
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Edward M. Aloe
Founder and CEO
626-229-9057
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Supply Chain and Labor Hurdles Continue to Hinder Operators
However, the pandemic has created a plethora of new opportunities for the multifamily industry
Multifamily developers and operators continue to adapt to the challenges spurred by the COVID-19 pandemic as well as look for opportunities based on renters’ shifting needs and wants.
While 2020 was about creating safe and touchless experiences for current and prospective residents as well as front-line construction and site teams, new issues have emerged in 2021—primarily around supply chain and labor shortages.
“We are still facing labor shortages, material shortages, wide-ranging price increases, and shipping delays,” says Keith Hughes, vice president of construction at Birchstone Residential. “Some of these challenges were already occurring to some degree, but the pandemic has exacerbated them.”
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Home price growth remained at record pace in August
Annual growth, at 19.8%, still at record level
Yet again Phoenix recorded the highest year-over-year home price increase at 33.3%. This is up from a 32.4% increase in July. San Diego again was second with a 26.2% increase and Tampa was third with a 25.9% increase.
Overall, eight of the 20 cities reported higher price increases in the year ending in August 2021 than in the year ending in July 2021 and all 20 cities saw month-over-month increases before and after seasonal adjustments. The U.S. national index posted a 1.4% month-over-month increase after seasonal adjustment.
“As has been the case for the last several months, prices were strongest in the Southwest (+24.1%), but every region logged double-digit gains,” Lazzara said in a statement.
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Picket Fences for Rent: 100+ Suburbs Transitioned to Majority Renters in Last Decade
The very definition of suburban living has been rewritten throughout the last decade as suburbs in the nation’s 50 largest metros gained 4.7 million people since 2010 — a whopping 79% of whom were renters, according to the latest U.S. Census data. Today, about 21 million people rent a suburban home in the 50 largest U.S. metros — 3.7 million more than 10 years ago. What’s more, between 2010 and 2019, the number of suburban renters grew by 22% — a number that dwarfs the 3% increase in suburban homeowners during the same period.
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About CALCAP
California Capital Real Estate Advisors, Inc., and its affiliate entities (CALCAP Asset Management, CALCAP Properties, CALCAP Lending, CALCAP Senior Healthcare and CALCAP Strategic Opportunities, collectively known as “CALCAP”), is a California based investment company founded and 2008 and headquartered in Pasadena, California. The Company sponsors alternative real estate investment opportunities focused on demographically driven housing. CALCAP has been able to consistently provide both individual and institutional investors with outstanding returns over the last 12 years. The Company uses a highly selective and disciplined investment approach, focused on delivering superior risk-adjusted returns. CALCAP currently has over $400mm in Assets Under Management. To learn more visit www.calcapadvisors.com.
Social Mission
CALCAP CARES is a 501(c)(3) private foundation organized to encourage employees to find a way to give back to the neighborhoods where we invest. CALCAP has created "GiveTime4Autism" as its initial program which will allow employees the ability to donate unused vacation and sick days for a very worthy cause.
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LOS ANGELES
The Sanborn House
65 N. Catalina Avenue
Pasadena, CA 91106
SAN DIEGO
12626 High Bluff Drive, Suite 360
San Diego, CA 92130
PHOENIX
740 N. 52nd Street
Phoenix, AZ 85008
SANTA BARBARA
1309 State Street, Suite A
Santa Barbara, CA 93101
ORANGE COUNTY
92 Argonaut, Suite 205
Aliso Viejo, CA 92656
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Edward M. Aloe, Founder & CEO
(626) 229-9057
Patrick A. Wakeman, Principal
(858) 764-4890
Drew Buccino, Principal and COO
(602) 419-3381
Greg Blix
Director of Investor Relations
(805) 896-8500
Tim Landwehr
CEO, CALCAP Lending, LLC
747-268-0675
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Mark A. Mozilo, Principal
(626) 229-9056
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