Freddie Mac: ‘Robust’ Multifamily Outlook
Freddie Mac, McLean, Va., predicted a “robust” rental market and strong multifamily volume growth through the end of the year.
“A strong labor market and a persistent housing shortage have continued to fuel a robust rental market,” said Freddie Mac Vice President of Multifamily Research and Modeling Steve Guggenmos. “As of June, multifamily completions outpaced the prior two years, but demand remains high in the majority of markets allowing them to absorb most of the new supply.”
Guggenmos noted the sector’s strong fundamentals and lower than anticipated interest rates support growth in multifamily originations. “With interest rates declining through the first half of 2019 and projected to remain low for the remainder of the year, we anticipate strong volume growth through 2019,” he said, adding if interest rates remain close to 2.2 percent for the rest of the year, 2019 origination volume could increase by 8 percent year-over-year to $336 billion.
“Strong economic growth and robust labor markets continue to support the strength of the multifamily market,” the report said. “Performance in the multifamily market ended 2018 much stronger than anticipated and has remained relatively healthy through the first half of 2019 despite a slower first quarter. Fundamentals are expected to remain strong throughout the rest of the year, but vacancy rates could continue their slow march up as more supply enters the market.”
Rent growth should finish the year at close to 4 percent, Freddie Mac said. “We continue to see an overall shortage in housing as demand outpaces supply, despite multifamily construction churning at elevated levels,” the report said. “As the 2019 leasing season picks up, the multifamily market remains in a good position to absorb most of the new supply.”
Looking a little further ahead, RealPage, Richardson, Texas, said apartment completions could set a record in 2020.
“The nation has seen crowning delivery volumes throughout much of the past five years,” RealPage said in a research brief, Apartment Completions Set to Spike in 2020. Nearly 285,000 new apartments delivered in the 150 largest U.S. markets in the past 12 months, down from 2017 levels but sizable compared to long-term norms. “Moving forward, apartment completions are expected to reach historic peaks.” it said.
More than 350,000 units are scheduled to deliver within the next 12 months, RealPage said.
“We continue to see an overall shortage in housing as demand outpaces supply, despite multifamily construction churning at elevated levels,” Freddie Mac said, noting Census Bureau reports that five-plus unit multifamily completions are on pace to exceed the previous two years. “As the 2019 leasing season picks up, the multifamily market remains in a good position to absorb most of the new supply.”