Inflation Reaccelerated and the Fed Tilted Hawkish
April CPI hit 3.8%, the FOMC minutes confirmed a majority leaning toward firming, multifamily distress moved to the coasts, and the rental market split into two distinct markets. Here's what stood out in May, and how we're reading it.
If April delivered mixed signals, May resolved most of them in the same direction. Inflation reaccelerated, the Fed's internal debate tilted hawkish, and multifamily distress climbed to a new high—this time migrating from the Sun Belt to the coasts. The rental market split visibly into two buckets. Underneath it all, the labor market cooled without cracking and Q1 growth was revised lower.
None of these moves is dramatic on its own. Taken together, they reinforce the case for underwriting to today's capital costs and being more selective—not more aggressive—about basis.
Inflation Reaccelerated, and Energy Did Most of the Work
The April CPI release, reported on May 12, showed headline prices up 0.6% month over month and 3.8% year over year, the highest annual reading since May 2023. Core CPI (ex-food and energy) rose 0.4% on the month and 2.8% on the year. Energy was the dominant driver: the energy index rose 3.8% month over month and 17.9% year over year, with gasoline up 28.4% and fuel oil up 54.3%. Shelter rose 0.6% on the month and remains the most stubborn component of services inflation.
The composition matters. Outside energy, the print was still uncomfortable but less alarming. Add energy back in—which the Fed has to do, because real households can't strip it out—and the case for cuts evaporates.
That puts the Fed in an awkward spot: the largest driver of the inflation print is geopolitical, not monetary. The energy spike appears tied in large part to the Iran conflict and constraints in the Strait of Hormuz (more on that below), and markets are now pricing that constraint into the forward rate curve.
The Fed Got Quietly More Hawkish
The FOMC minutes from the April 28–29 meeting were released on May 20. They confirmed what the four-dissent vote already implied: the consensus inside the committee has shifted, and not in the direction sponsors penciling rate relief into their models would prefer. "Almost all participants" flagged the risk that higher energy and input costs could persist, and a "vast majority" worried inflation would take longer to return to the 2% target. More notably, "a majority of participants" said some policy firming would likely become appropriate if inflation continued to run persistently above 2%.
Three months ago, the question was when the Fed would cut. Now the question is whether the next move could be a hike, and a majority of the committee is willing to discuss it openly.
To be clear, this is a case for the Fed staying put longer, not for hikes—but the directional shift is real. For now, the market sees no imminent move: fed funds futures put the odds of a hike at the June 17 meeting near zero, a roughly 99% chance of a hold per CME FedWatch. But the curve steepens from there—the cumulative probability of a rate above today's 3.50–3.75% range crosses 60% by early 2027 and over 70% by spring, per CNBC's reading of fed funds futures.
The Labor Market Cooled, but Didn't Crack
The April jobs report, released on May 8, showed nonfarm payrolls up 115,000 and the unemployment rate unchanged at 4.3%. Health care (+37K), transportation and warehousing (+30K), and retail trade (+22K) led the gains. Federal government employment continued its multi-month decline (−9K), and information and manufacturing both lost ground. Average hourly earnings rose 3.6% year over year, below consensus, and labor force participation fell to 61.8%—the lowest since October 2021.
That's a softer print than March's 185K, but it's the wrong kind of softness for anyone hoping cooling jobs data forces the Fed's hand. With inflation reaccelerating and wage growth decelerating in the same month, the Fed gets to keep its hawkish bias without paying for it in employment headlines. For multifamily, the read-through is mixed: slower wage growth is a modest headwind to rent affordability at the margin, but the unemployment rate sitting at 4.3% means renter household formation isn't collapsing, and renter households are still renting.
Q1 GDP Came In Softer Than First Read
The BEA's second estimate of Q1 GDP, released May 28, revised growth down to 1.6% from the 2.0% advance reading, driven primarily by downward revisions to investment and consumer spending.
Q1 came in stronger than Q4 2025's 0.5% headline pace, but the under-the-hood data was less encouraging. Real GDI decelerated from 1.6% to 0.9%, and the average of GDP and GDI—arguably the cleaner read on activity—moved only modestly from 1.1% to 1.3%. That's not recession territory, but it's not the kind of robust offsetting growth that would relieve pressure on the inflation print. For underwriting purposes, this is the environment we've been preparing for: real activity uneven, inflation sticky, and capital costs holding. None of those data points individually changes our acquisition standards, but together they reinforce the case for asset-level resilience over macro-driven thesis trades.
Oil Eased, but the Risk Premium Didn't
The Iran situation evolved meaningfully through the month. After President Trump called off an imminent wave of military strikes against Iran on May 18 to give negotiations more time, Brent crude has fallen roughly 19% over the course of May—its worst month since March 2020—trading in the low-$90s late in the month, with WTI in the high-$80s. Secretary of State Rubio confirmed on May 27 that talks had "made some progress."
That's the optimistic reading. The physical picture is less encouraging: tanker traffic through the Strait of Hormuz remains constrained and security risk has not cleared; even a negotiated outcome may take time to translate into normalized shipping and production flows.
That residual risk premium is now embedded in CPI—which is why a clean diplomatic resolution would matter more for the Fed's 2026 path than another 25 bp of labor-market softening.
The Rental Market Has Split in Two
On May 14, Apartments.com launched its RentPulse Index, a quarterly framework designed to measure renter health beyond headline rents—tracking affordability stress, concessions, supply pressure, and demand. The inaugural Q1 2026 readings made explicit what the monthly data has been signaling all year: there are now effectively two U.S. rental markets, and the line between them is supply.
Nationally, 41.2% of properties are offering concessions, up 9.9 points from 2025—but that average hides the split.
Bucket one is the oversupplied markets, where the construction wave overshot demand and renters now hold the leverage. These are the Sun Belt and Mountain West metros—Austin, Phoenix, Denver, Tampa, San Antonio—where rents are falling and concessions run the deepest in the country; Austin rents alone are down roughly 4% year over year. These markets stay renter-favorable until the excess clears.
Bucket two is the supply-constrained markets, where landlords keep pricing power. Gateway and supply-constrained markets—New York and Chicago among them—have added just 1–2% to stock in recent years (per PwC/ULI's 2026 Emerging Trends in Real Estate) and are pushing rents higher, but renters there are stretched. The Midwest shares the supply discipline without the affordability stress: Northmarq's Q1 Twin Cities report shows Minneapolis-St. Paul posting a fifth straight quarter of rent gains at +4.5% year over year, and per RentPulse the Midwest still has rent-to-income ratios under 25%.
Multifamily CMBS Delinquency Climbs Again—Driven by Coastal Loans
April's CMBS data, reported by Trepp via Multifamily Dive, showed the multifamily-property CMBS delinquency rate jumping 56 basis points to 7.71%—a new cycle high for the segment, and up 114 bps year over year from 6.57%. The all-property CMBS delinquency rate actually edged down to 7.54%, so this is a multifamily-segment story, not a broad CMBS one. The composition was striking: two large loans drove the spike, one in San Francisco and one in New York City, both 30 days delinquent. By contrast, office delinquency edged down 2 bps to 11.69%, and retail fell 31 bps to 6.31%.
This shifts the distress narrative again. For most of 2024 and 2025, the story was Sun Belt assets with floating-rate debt and aggressive 2021–2022 underwriting. Through Q1, NY/NJ and Houston dominated the new distress. April's data adds San Francisco and additional New York exposure to that mix. The common thread isn't geography—it's capital structure under pressure colliding with property-level execution risk. Trepp also noted that $2.57 billion in commercial real estate loan balances hit hard maturity dates in May, with no remaining extension options—meaning the next leg of distress is now visible on the calendar rather than implied.
Permits Up, Starts Down—The Pipeline Keeps Narrowing
The Census Bureau and HUD reported on May 21 that April building permits rose 5.8% month over month to a seasonally adjusted annual rate of 1.442 million units. Permits for buildings with five units or more came in at 514,000. Housing starts moved the other way, falling 2.8% month over month to 1.465 million, with multifamily starts (5+ units) at 529,000. Single-family starts dropped 9.0% month over month.
Permits and starts often diverge by a month or two (permits lead, starts lag) and one month doesn't override the broader signal. The relevant trend is still that 2026 deliveries are running well below the 2024 peak, the 2027 pipeline is thinning further, and multifamily completions in April were up 4.8% month over month, which means the existing supply wave is still washing through specific markets even as the next wave shrinks. The investment implication hasn't changed: this is a submarket-by-submarket exercise. Markets where the 2024–2025 supply has now been absorbed and the 2026–2027 pipeline is genuinely thin are setting up well. Markets still working through heavy deliveries are not.
Closing Thought
May's message was that the macro environment is hardening into the shape we've been underwriting toward, rather than softening into the one the consensus hoped for at the start of the year. Inflation reaccelerated. The Fed's internal majority shifted toward firming if needed. GDP slowed. Distress climbed to a new high and moved into markets that hadn't carried the brunt of the prior wave. The rental market formally split into two markets. And the oil shock that's driving most of the inflation print has eased but not resolved.
Our approach hasn't changed, and we don't think it should. We underwrite to today's capital costs rather than theoretical future cuts. We select markets for supply moderation, durable renter demand, and operating resilience. We look for situations where stress is driven by capital structure rather than fundamentals, and we treat operational execution and basis discipline as the primary path to value creation. May added more evidence that the cycle will reward sponsors who can hold that line.
This is also a market where the gap between disciplined and undisciplined capital is becoming more visible in real time. We're seeing it in the bid sheets, in the recap conversations we're having, and in the assets that come back to market for the second or third time after failing to clear. That gap is where we expect to do our best work over the next twelve months.
As always, please reach out with questions or to discuss what we're seeing in our active markets.
Will Thompson
Founder & CEO, Oakdale Capital
Sources
CNBC, "CPI inflation April 2026: Prices rose 3.8% annually," May 12, 2026. cnbc.com
U.S. Bureau of Labor Statistics, "Consumer Price Index Summary — 2026 M04 Results," May 2026. bls.gov
Federal Reserve, "Minutes of the Federal Open Market Committee, April 28–29, 2026," released May 20, 2026. federalreserve.gov
CNBC, "Fed officials see rate hike ahead if inflation stays elevated, minutes show," May 20, 2026. cnbc.com
CNBC, "Jobs report April 2026," May 8, 2026. cnbc.com
U.S. Bureau of Economic Analysis, "GDP (Second Estimate) and Corporate Profits, 1st Quarter 2026," May 28, 2026. bea.gov
CNBC, "Oil prices fall more than 5% after Rubio says U.S. will give Iran talks 'every chance to succeed,'" May 27, 2026. cnbc.com
CNBC, "Iran's threat to control the Strait of Hormuz is rattling oil markets," May 26, 2026. cnbc.com
CoStar Group, "Apartments.com Launches RentPulse, New Quarterly Index Highlighting the Deeply Divided Rental Market," May 14, 2026. costargroup.com
Multifamily Dive, "Multifamily CMBS delinquency rose 56 bps to 7.71% in April: Trepp," May 2026. multifamilydive.com
Yield Pro, "Multifamily CMBS delinquency rate rises again in April," May 2026. yieldpro.com
U.S. Census Bureau / HUD, "New Residential Construction, April 2026," released May 21, 2026. census.gov
