Freddie Mac: Multifamily Oversupply Risk Likely ‘In Check’

Steady absorption, a modest drop in multifamily starts and stable employment growth should keep multifamily oversupply risk in check, reported Freddie Mac Multifamily, McLean, Va.

The company’s multifamily’s outlook report also cited new household formations and changing lifestyle preferences that favor rental housing as factors working against a potential oversupply. But apartment vacancy rates could top 5 percent nationally later this year for the first time since 2011, the report said.

“Demand for rental units is at a historic high due to demographic changes and lifestyle preferences, but increasing new supply and other factors are likely to moderate multifamily market growth in 2017,” said Freddie Mac Multifamily Vice President of Research and Modeling Steve Guggenmos. “In particular, landlords are likely to pull back on rent increases as new supply enters the market and vacancy rates rise.”

Guggenmos said Freddie Mac Multifamily expects rents to grow at their 2016 pace–which exceeded historical averages–for another year.

Yardi Matrix, Santa Barbara, Calif., said multifamily rents finished 2016 up 4 percent.

“With the economy creating jobs at a 2 million-per-year rate and GDP growth showing strength, we expect no let-up in apartment absorption [in 2017],” Yardi Matrix said. “We do expect rent growth to continue moderating during the first half of the year, as a large amount of new supply comes online and apartment owners must compete to maintain high occupancy levels. Growth should get a boost in the second half as the impact of economic stimulus takes effect and the increase in new supply begins to slow.”

Overall, gross income growth will likely average 3.4 percent in the nation’s top 70 metropolitan markets, Freddie Mac Multifamily predicted. It noted that performance in individual metros will vary based on local supply and demand characteristics.

“Looking at our list of top ten markets, we see the west coast remain a dominant player but moving away from the Bay Area to other western cities–Sacramento, Seattle, Tacoma and Portland–and a number of less likely candidates–Jacksonville, Phoenix and Tampa–moving up the rankings in the coming year,” Guggenmos said.