The other thing that we are watching, frankly, is some of the larger equity sponsors and what their exposure is to other sectors, whether that’s retail or office and some of them have big exposures to multifamily development and some of them have liquidity needs, which states that they execute transactions in some of the multifamily space. So we’re having some discussions with folks like that. We’re certainly hopeful that that will yield some opportunities. But I do think that the pricing expectations on the seller side is still a bit lower than where we think pricing needs to be pricing expectations are still low 5s. So we still need to see some movement up in cap rates from where those expectations are for the market to really pick up. So it’s an area that we continue to work on.
And we do think that there’ll be more opportunities as we get through this year.
Operator: And we’ll take our next question from the line of Jamie Feldman with Wells Fargo.
Jamie Feldman : Great. I appreciate all the color on rents and how you think you can inflect more positive, but I guess this is like a case study. If you think about your weakest market, your deepest supply challenged market, and what do you think the pace of rents look like in that market or the kind of the quarterly improvement? Or is it still weak into ’25? I think just looking for like the worst-case scenario so we can build on the better.
Tim Argo: Well, I mean I will say when we talked about construction starts that peaked somewhere around the middle of 2022 that is pretty consistent across our markets. There are a few that were a little bit later that or few a little bit earlier than that. So it is a relatively consistent supply wave in terms of the timing Obviously, some markets are getting a lot more supply than others, which drives under overperformance. I mean Austin is the market we talked about forever that is our weakest one right now. I mean it’s just getting a tonne of supply, it’s very widespread throughout the market, whereas some other markets a little more targeted. So that’s 1 that has probably been the worst new lease performance right now. So I mean, I think a market like that will continue to struggle through most of 2024, probably be 2025 before it starts to see a little bit of improvement.
But I would say that, again, sort of the cadence of supply is relatively consistent across most of our markets.
Eric Bolton : And just to add to what Tim is saying, while the cadence of supply is fairly consistent, where you do see a lot of differences on occasion is by market, some — the percent of new supply coming to the market — as a percent of the existing stock will vary a bit. And then also, you see, of course, market differences in terms of demand and demand drivers. And so in a market like Austin, where it’s probably 1 of our — if not the most oversupplied market that we have or supply high relative to percent of existing stock. It also happens to be one of the strongest job growth markets that we have. And probably, as a consequence of that, we’re seeing absorption rates, if you will, probably running higher in Austin than we would in a market like Dallas or some of the others that are also getting a lot of supply, but maybe not quite the level.
I think Dallas obviously is getting a lot of job growth. But a market like Jacksonville, where you’re not getting quite the level of job growth that you get in a market like Austin, so I think you have to be careful in trying to extrapolate 1 market to the whole portfolio in terms of performance expectations. I sit will vary quite a bit, and that’s obviously why we diversify the way we do. As Tim and Brad alluded to in their comments, this is why we also have a mid-tier market component to our portfolio where we’re seeing some of these mid-term markets holding up in a much more steady fashion than some of the others. So I think that the question about how quickly any given market steps through the or steps back through the supply pipeline, if you will is going to largely be a function of the demand factors that we see in those markets.
And a market like Austin, we think has huge potential long term for us and steps back pretty strong, probably late this year and more likely into early ’25.
Jamie Feldman : Okay. That’s helpful. Yes. I mean the question is coming from — I think most of you and most of your peers are thinking that by the end of the year, a lot of these markets are much better. So that’s what I’m trying to figure out like what — so maybe if you guys pick the market, like what do you think is going to be the market that has the most pain for the longest period combining both job growth projections and supply just so we can at least keep our eyes on that to see like this is the worst case.
Tim Argo: Yes. I would put Austin in that group for sure.
Brad Hill : Yes, I’ll agree with all. I mean it’s just — it’s getting a lot of supply and frankly, without the level of job growth that would be worse off than it is. So getting a tonnes of jobs, but not is going to take some time to work through.
Jamie Feldman : That’s helpful. And then thinking about the acquisition opportunities, I mean, you currently have very low leverage versus your peers how high would you be willing to take that leverage if you found the right opportunities? And then what do you view as your absolute buying power right now?
Tim Argo: Yes. I think just from a leverage standpoint, we would be comfortable moving it up to 4.5% to close to 5%. And of course, that would take a lot of time at this — at the rate that we’re looking at these coming through to get to that point. But we would be comfortable taking our leverage up to that point.
Jamie Feldman : Do you have a sense of total dollar amount?
Tim Argo: I think that gets to roughly $1.5 billion.
Operator: We will take our next question from the line of Nick Yulico with Scotiabank.
Dan Tricarico : It’s Dan Tricarico on for Nick. Brad, you talked about the improving absorption in the back half of the year. Can you comment on what you’re seeing on the demand side, job growth migration that gives you this confidence? Maybe the general economic outlook embedded in the guide? Maybe said another way, what household formation or job growth scenario gets you to the low end of guidance?
Brad Hill : Yes. Well, I’ll start out Tim can certainly jump in here. But a couple of points I’ll make here on the demand side is definitely the traditional demand drivers that we see, whether it’s job growth, population growth, migration trends, all of those are still very, very positive and steady within our region of the country. And those will continue to be significant drivers over the long-term for us. But we also see another dynamic that’s kind of at play here. And a big part of that has to do with the single-family market and really has to do with the affordability and the availability that we see there. As Tim mentioned in his opening comments, we’ve seen a significant decline in the move-outs to buy a home. That’s down 20% year-over-year with us.
And if you look at the cost of buying a home in our region of the country, it’s up significantly over the last couple of years, the monthly cost of homeownership is about 50% to 60% higher than the rents are within our region of the country. So that’s a significant hurdle for most people. We’ve also seen the construction starts in the single-family sector continue to decline. So the inventory level of available single-family continues to decline. And so, we think that’s a pushing segment of demand into multifamily. And it’s also pushing folks to stay longer in multifamily. We’ve seen the average tenure of our residents almost 2 years now. So that’s got a demand component to it as well. And then we’ve also seen some preference shift within the demographics that are our rental demographics, honestly, and that is a preference to live alone.
And so that also is extending the household formation numbers that we’re seeing. And so all of that really combines to a point that Eric made in his comments, which is that apartment rental continues to make a higher make up a higher percentage of the occupied housing. And so as we look out and see demand in our region of the country, those traditional drivers continue to be important, but there’s also this other component that is really adding to the demand component that we see in our region of the country. Tim, what would you add?
Tim Argo: Yes. I’ll add a couple of points there. I mean I think the job growth component and how much there is will be probably more likely the factor that determines to your original question, kind of high and low end, that sort of thing. I mean, I think we expect be in migration and all things Brad just noted to be there and that component of demand to be pretty consistent with what we’ve seen in the last couple of years. We’ve dialed in about 400,000 new jobs into our expectations for our markets for ’24 that’s down certainly from 2023, but still net positive and so expect job reprices in the subnet markets. And encouragingly, if you look at the national job growth numbers from January added, I think, about 350,000 new jobs in January. You compare that back to 2023, the average is about 250,000 a month. So while we do expect job growth to be down some to 2023, the early indications are that it’s still holding up pretty well.
Dan Tricarico : That’s great color. Follow-up on development. You have 3 or 4 development starts this year, development starts. What markets are those in? And what are underwritten stabilized yields on those? And I guess, along the same line, you talked about Austin being the weakest. You stabilized Windmill Hill in Austin in the fourth quarter. Can you give us a sense of how that asset leased up versus your expectations? And obviously, a little bit more suburban, but how do you expect that asset to perform within the Austin market this year, given it’s expected to be 1 of the weaker markets?
