Analysts Remain Positive on Multifamily Market

Volatility has returned to the markets, but several analysts maintain a positive long-term outlook on the U.S. multifamily market.

“With a rising interest rate environment and an impending changing of the guards at FHFA, Freddie Mac and Fannie Mae, many are left wondering what the future holds for the U.S. multifamily market,” Walker & Dunlop said in its Outlook on the Multifamily Market report. But the firm noted it maintains its positive outlook on the multifamily sector for several reasons. “Strong performance, healthy levels of supply and demographic and social trends will support its continued growth,” the report said.

“Even the unchanged FHFA caps for 2019 indicate confidence in the size of the market and continued capital flow into the U.S. mortgage system, which attracts investors from around the globe and underpins our nation’s economy.”

Barbara Byrne Denham, Senior Economist with Reis, New York, noted apartment construction started to accelerate in 2017 and remained “elevated” throughout 2018. “This had raised concerns that the apartment market was becoming overbuilt,” she said. “Yet consistently, apartment occupancy growth has nearly kept pace with supply growth as demand for apartments has been robust throughout 2018.”

Byrne Denham said not only has job growth supported apartment demand, but the weaker housing market also benefitted the apartment market. Though existing home sales climbed in October and November, that metric fell in eight of the ten months prior to October, she said.

Reis expects multifamily construction to remain “robust” in 2019 before completions drop off in 2020, Byrne Denham said. “Occupancy is expected to remain positive, although vacancy rates are expected to increase, as new supply will outpace demand growth in most metros,” she said.

Stronger apartment demand in several metros could push developers to file more permits, which could extend the construction cycle, Byrne Denham said. She cited Queens, N.Y. and suburban Washington, D.C. where Amazon.com plans to open new headquarters offices as examples of markets that will likely see new demand.

“Our [multifamily market] outlook remains favorable given the current conditions of positive job growth and tepid housing sales,” Byrne Denham said. “The recent momentum should keep rent growth positive even as vacancy rates are likely to edge up a bit in the next few quarters.”