release edition [074]

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:

• CPI: The 4.2% Autopsy
• Fed: Warsh's First Test
• Operations: Green Shoots
• Weekly Listen: Monetary Matters

Before we begin, a heads up: later in this issue, I share something that happened on my rent rolls that hasn't happened in years. But first, let's unpack the CPI number that everyone saw on Wednesday.

The CPI Reality

Last Saturday, I wrote that rates might still fall despite a strong May jobs print. Four days later, May CPI printed at 4.2% year-over-year, the hottest headline reading since April 2023.

Am I going too contrarian, or is there perhaps more to the story?

Let's find out.

Headline CPI rose 0.5% in May, pushing the annual rate to 4.2% (per BLS). At face value, that's a Fed nightmare and a vindication for everyone calling for "higher-for-longer".

But the composition of CPI tells a different story.

Energy rose 3.9% in May alone and accounted for more than 60% of the monthly increase. Gasoline is now up 40.5% year-over-year as the Iran conflict and Strait of Hormuz disruptions ripple through the energy complex.

Core CPI, which strips out food and energy, rose just 0.2% on the month and 2.9% annually.

That monthly figure came in below the 0.3% consensus estimate. Core commodities actually declined 0.1%.

Shelter, the largest component in the index at roughly a third of the basket, rose by 3.4% year-over-year and continues to decelerate.

As I wrote in TMD 064, national rents were flat for 18 consecutive months through early spring.

The inflation that many are panicking about is an energy shock layered on top of a disinflating Core CPI.

This is the exact composition I described last week in TMD 073, and it's the framework I first put on paper back in TMD 053: that low rates don't cause inflation; money printing does, and so does supply side shocks in the near term (see: COVID).

Today's Headline CPI is being driven by a war premium and fiscal policy, but the uncomfortable truth is that the Fed Funds Rate can't reopen the Strait of Hormuz.

So, even if the Fed elected to raise rates this week, the Headline CPI inflation problem will continue to persist simply because oil and gas are inelastic goods that are woven throughout the fabric of the global economy.

For those of us operating Multifamily assets, deflation of revenues has been a headwind that has been challenging to combat.

With shelter decelerating while the Headline CPI accelerates, apartment owners are getting squeezed on both side: revenues have been flat or falling in many markets while expenses have continued to rise.

Even so, I expect CPI, both Headline and Core, to continue to normalize once the Iran Oil Shock is in the rearview mirror.

As you can see on the graph below, shelter CPI (red dots) pre-COVID hovered between 3-4% annually, while CPI ex food and energy (green line) was consistently between 2.0-2.5% annually.

Summary

May's 4.2% Headline CPI was real, but it was largely attributable to a supply constraint on the energy market, not a demand-side market force that is pushing prices higher. Core CPI ran at 2.9% and slowed against expectations, core goods deflated, and shelter continued its long glide down. The print tested my thesis from last week, and it seems to have held up despite how the headlines may read.

Actionable Takeaway

The Headline CPI can be misleading. Watch core services and the shelter trajectory instead, because those are what drives policy over time. Understanding the underlying causes of the underlying CPI is critical to guiding strategic decisions.

Warsh's First Test

On Wednesday, Kevin Warsh chairs his first FOMC meeting as Fed Chair, and it happens to be a Summary of Economic Projections meeting, so we get a fresh dot plot too.

When his nomination was announced in January, I profiled Warsh in TMD 055. His own words from before taking office: "We need regime change in the conduct of policy."

He now gets to define and defend what that means with a 4.2% headline on his desk in week four of the job.

In that same edition from late January, I shared an observation from my 27 meetings at NMHC: That the direction of interest rates was noticeably absent from every conversation, and I flagged that complacency as a risk if dramatic near-term changes occurred.

Well, that risk just showed up.

In the span of roughly a week, markets went from debating when the next cut arrives to pricing meaningful odds of a hike.

Prediction markets now put the probability of a 2026 rate hike at nearly 40%, while futures still assign near-certain odds of a hold on Wednesday (CME Group).

The 10-year sits at 4.48%, and the long end has been drifting higher since the jobs print.

My opinion is that hiking into this print would be fighting the wrong enemy.

As I mentioned above, the current energy shock is a supply problem, and as I wrote in TMD 030, higher rates can even add to inflation by raising the cost of capital that flows through to housing, energy production, and everything else that requires financing.

Meanwhile, the Running Hot fiscal framework that I described last year in TMD 029 keeps pressure on the long end no matter what the committee does with the front end.

So here's what I'm watching on Wednesday:

1. The statement language. Does the easing bias survive, or does it get removed entirely?
2. The dot plot. Where does the 2026 median land after this print?
3. The dissent count. The last meeting produced four dissents.
4. The press conference. How will Warsh separate the energy shock from the core CPI trend?
5. The balance sheet. Any signal on QT is a tell for the framework I outlined last week, where front-end cuts and balance-sheet policy move independently.

Summary

Warsh inherits the hardest first meeting a Fed Chair has faced in years with a 3-year-high Headline CPI built on a supply driven energy shock, with a softening core underneath it, and a market that repriced from rate cuts to hikes in a single week. Wednesday may be more about the commentary than the the decision.

Actionable Takeaway

The refinance window that I described in TMD 070 has remained open thanks to the strength and depth of debt markets, not the direction of the 10-year. A hawkish dot plot may give lenders pause, so it could be advantageous to get near-term refinance conversations started now while spreads remain tight.

Green Shoots

Now, let's jump into some Multifamily specific operations updates.

For the first time in a long time, lease trade-outs across some of the assets have turned from negative to flat, and in some cases slightly positive.

If you've been reading The Multifamily Download for a while, you know why this matters.

In TMD 040, I called elevated gain-to-lease a falling knife. Rent rolls marked above market that would inevitably grind down lease by lease as each renewal and new lease repriced to the current reality. That knife has been falling across the sector for the better part of three to four years.

On our rent rolls, it finally appears to have hit the floor.

Additionally, concessions appear to have stabilized and are receding selectively, and leasing traffic is rebounding positively both year-over-year and quarter-over-quarter.

None of this is substantial, so I want to be careful not to overemphasize a small sampling of data.

But the trend seems to have changed, and this trend is worth watching.

In TMD 063, I wrote about the Renewal Cliff, or the future wave of concession-heavy 2025 leases hitting their renewal windows this quarter.

So far, in our Western U.S. markets, that cliff is resolving more gently than I anticipated.

Residents are renewing (albeit some with renewal concessions), and the gap between where leases were signed and where the market rent sits today has narrowed enough to absorb the step-ups in net effective rent.

Here's why this matters for NOI.

When trade-outs cross from negative to positive, revenue growth shifts from playing defense (fighting concessions, defending occupancy) to playing slow offense.

It's the property-level version of the bottoming process, and it's consistent with the NMHC consensus I shared in TMD 055 that Multifamily rents and prices may finally bottom in 2026 in markets where they haven't already.

Now, the other side of the coin.

The June 3rd Beige Book described a consumer splitting in two: Higher-income households holding up while lower-income households show real strain, with increased credit card usage, stronger demand for staples, and rising consumer loan delinquencies.

The New York Fed's Q1 report tells the same story, with credit card delinquencies remaining elevated at $1.25T outstanding.

This is the K-Economy I've been writing about since TMD 004, and it's now visible in the Fed's own credit tables.

For Multifamily operators of workforce assets where rent-to-income ratios on existing leases already runs north of 30%, I expect accounts receivable and bad debt to remain elevated even as the top line improves.

TL;DR - The property operations green shoots are real, but they're growing in uneven soil and it remains to be seen how fast they'll blossom into a market recovery.

Summary

Trade-outs beginning to turn positive after years of gain-to-lease burn-off is encouraging, and if the trend holds, it may mark the mechanical start of NOI recovery. However, the consumer credit data says the recovery will continue to be uneven, and workforce assets will carry elevated bad debt risk even as pricing power returns.

Actionable Takeaway

If you're an operator, lean into retention while trade-outs recover, and watch collections weekly at your workforce assets rather than waiting for the monthly financials. If you're an LP, add a question to your next sponsor call to ask about bad debt and AR trends, in addition to occupancies and trade-outs. Occupancy can appear healthy while the income statement says otherwise.

Weekly Listen

This week's listen is Monetary Matters, where host Jack Farley sits down with Tian Yang, CIO of Variant Perception.

Yang lays out how the Iran conflict could force a macro regime change, covering energy shocks, jobless growth, and the case for a manufacturing recovery. It's a natural companion to today's first section: If the 4.2% print is supply-driven, Yang's framework could map what comes next.

You can listen to the full episode here.

Wrap Up

That's it for today. An inflation print that wasn't what it seemed, a new Fed Chair's first test, and the first green shoots on our rent rolls in years.

If this issue helped you see beneath the Headline CPI, forward it (or this link) to a friend or colleague.

Your feedback is appreciated, so feel free to reply anytime.

Thanks for reading. See you next week!

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