Economic Trends Shaping Jacksonville's Multifamily Market

“Borrowing and lending were down for every property type and capital source from one year ago. However, compared to this year’s second quarter, volumes were more stable, and some sectors – including industrial properties and life company lenders – showed an uptick in volume.”

- Jamie Woodwell, Head of Commercial Real Estate Research at Mortgage Bankers Association

Hi Nuvo Community,

_{We downloaded raw data from the Federal Reserve of St Louis and found a fairly strong negative correlation between educational attainment in Jacksonville and the prevalence of housing-cost-burdened households. For reference, a burdened household in the United States is any household spending more than 30% of its monthly income on housing. It is generally recommended that a household spend no more than 25% of their monthly income on housing.}

_{The strongest correlation emerges with a 4-year delay, suggesting a predictive relationship between past education levels and current housing affordability. As education levels rise, historical data suggests a subsequent reduction in the proportion of income that households allocate to housing expenses. This makes sense intuitively. Higher education has historically been associated with higher income levels, which means more money left over for housing expenses. For multifamily stakeholders, these insights offer another data point to consider when forecasting future market performance and tenant financial stability.}

_{Interpreting the Raw Data}

_{An initial glance at the raw data gives us a basic trajectory of these two metrics. Think of a graph where one line tracks the rise or fall in educational achievements, and another line follows the financial strain on households. This comparative view serves as a backdrop to a more in-depth analysis. You can see this relationship (or apparent lack thereof) in the chart below.}

_{The Significance of Year-over-Year Analysis}

_{Delving deeper, we examine the year-over-year (YoY) changes. This approach filters out one-time outliers and brings forth the underlying trends. We can watch the economic narrative unfold in motion, offering a clearer perspective on the direction and velocity of change. The chart below depicts YoY changes. Notice how the trend lines seem to move in opposite directions now, when one goes up, the other goes down. The negative correlation becomes more clear now.}

_{Education as a Leading Indicator of Housing Affordability}

_{Now that we know there is a negative correlation, we’ll see if education can be used as a leading indicator. The correlation coefficient of -0.601 with a 4-year lag indicates that it can be. We can observe that delayed relationship in the chart below. In simple terms, a rise in educational attainment today implies better housing affordability four years in the future, and vice versa.}

_{Implications for the Multifamily Sector}

_{The implications of educational attainment on Jacksonville's multifamily market should be considered for investment strategies and underwriting. As educational levels rise, historical data suggests a subsequent reduction in the proportion of income that households allocate to housing expenses. For investors, this trend signals a potential increase in the financial stability of tenants, which could translate into higher rents, lower delinquency rates, and reduced turnover costs.}

_{From an underwriting perspective, this socio-economic indicator provides a lens for assessing risk and forecasting financial performance. When evaluating multifamily assets, underwriters might factor in the educational makeup of the tenant population as a component of the area's economic profile, considering it alongside traditional metrics such as employment rates and income levels.}

_Conclusion

_{While correlation doesn't equal causation, the identified trend is a noteworthy indicator of potential economic health in submarkets. Investors and asset managers should consider these educational achievements as one of many leading indicators for housing market resilience and tenant affordability. These insights can inform asset management decisions and investment strategies, and are just one of the many data points Nuvo analyzes when determining where to invest.}

Happy Real Estate!

All the best,

Yuri - Your Real Estate Investigator

Credit: Brian Underdahl, Chief Analytics Officer & Jackson Burks, Economic Analyst Intern

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