I’ve lived in Northern Virginia for more than 25 years now. Over that time, I’ve developed an internal list of the best coffee shops in the area to work at and, occasionally, meet multifamily leaders.
While Northside Social in Clarendon will always be my favorite, one of my current go-tos is the Compass Coffee spot in Ballston. (However, I may soon need to find other options, according to The Washington Business Journal.)
If you want to run into multifamily decision-makers, it’s not a bad place to be. It sits directly across from AvalonBay Communities' former headquarters. That is now one of the two home bases of the new Vivmark Residential. Just down the street is the headquarters of the National Apartment Association, which, full disclosure, was once my employer.
On the day that AVB’s shareholders met to greenlight the REIT’s merger with Equity Residential, I had coffee with NAA Vice President of Research George Ratiu about the economic climate heading into the fall.
“Fall to me is always a tricky period because it's a combination of post-summer vacation sobering,” Ratiu told me. “If you go back 100 years, when you look at stock market performance, which is driven by psychology, September and October are the trickiest months. A few years ago, I went back and looked at every stock market crash because I didn't think there was a specific period of the year [for crashes]. I was a bit surprised.”
I immediately perked up. It just so happens that, right now, I’m reading “1929” by Andrew Ross Sorkin. Ratiu doesn’t expect the artificial intelligence bubble to burst this October, leading to another 1929 or 2008, but he’s concerned about what the next few months could bring. “Consumer psychology, investor psychology, for me, is a big thing,” he said.
So far, consumers have been spending, but Ratiu worries inflation will continue to take a larger chunk of their paychecks. “For someone who is literally within $100 or less of either making or not making their budget every month, when you go to the grocery store, and you come out with three bags, and it's 100 bucks, that makes a huge difference,” Ratiu said.
With less disposable income for consumers, Ratiu is watching for signs that consumers are finding it more difficult to pay off their credit cards and auto and student loans as potential warning signals.
“It's not yet a crisis,” Ratiu said. “But, when I put some of these signals together, they do create a little bit of an image of tension.”
Downside risks accumulate
A soaring stock market has created what Ratiu called a “wealth effect,” making even middle-class Americans feel good about their financial position. “Should the market register a correction or drop, suddenly people are not going to feel as good as they did just a few weeks ago,” he said.
With the war in Iran, contentious midterm elections, a possible Federal Reserve rate hike, worries about an AI bubble in the stock market, ballooning U.S. debt, questions around labor force participation and other potential storm clouds heading into the fall, I asked Ratiu if we were entering a “perilous” time.
“Downside risks are accumulating,” Ratiu said. “There's, on the surface, this appearance of stability in the economy. But under that surface, there are a lot of cross currents that have the potential to upend this apparent calm.”
But how do these signals translate to apartment owners and managers? Ratiu said the overall fundamentals are still solid, with strong demand. But location and asset class often dictate performance.
If longer-term unemployment ticks up meaningfully this fall, housing providers are bound to feel the effects. Some observers see job losses hitting the top of the market, but Ratiu is watching the effects on older properties.
“Class B and C have been fairly stable because that's workforce housing,” Ratiu said. “So to me, someone that's much longer-term unemployed is likely to impact those. We're going to start seeing stress there, which we haven't seen.”
As we talked over the hour, customers (and their dogs) streamed in and out of Compass, as they would any other weekday. It was business as usual. And maybe things will remain that way into 2027.
But after talking to Ratiu and reading “1929,” I’m giving a lot more thought to what’s brewing beneath the surface.
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