Pandemic Likely to Have ‘Meaningful Impact’ on Multifamily Market

Freddie Mac, McLean, Va., predicted marginal reductions in rents and increased vacancies as the multifamily market responds to the COVID-19 pandemic’s economic effects.

Total multifamily origination volume will likely decline in 2020 compared with 2019, Freddie Mac said in its Midyear Outlook report.

“The economic challenges brought on by the COVID-19 pandemic will have a meaningful impact on the multifamily market in 2020,” said Freddie Mac Vice President of Multifamily Research and Modeling Steve Guggenmos. “[But] the industry entered the current recession on solid footing and is well-positioned to absorb the impacts of the recession due to substantial growth over the past several years.”

The Freddie Mac 2020 Midyear Outlook also said:

— Multifamily performance was “solid” through 2019 and into first-quarter 2020, but the second quarter started to see weakening fundamentals which are expected to continue through the year due to the economic recession. Freddie Mac forecasts vacancy rates will finish the year up 200 to 250 basis points higher and rents -1.2 percent to -1.7 percent lower, resulting in gross income growth between -3.3 percent to -4.2 percent.

— The company does not expect declining income growth and collections to affect well-positioned properties, especially given the prior several years of above-average income growth and property price appreciation. But if unemployment rates remain elevated, renters who were already more cost-burdened than owner households could see a greater degradation to their ability to pay rents. “The projected level of gross income decline and reduced collections are not expected to impact the ability of well-positioned properties to pay monthly debt and expenses,” Freddie Mac Multifamily said.  

— Multifamily origination volume could decline by 20 percent to 40 percent this year compared with 2019 based on several different macroeconomic forecasts, the report said. The magnitude of the decline will depend on the economic recovery and the nation’s ability to contain the virus. Despite lower overall volume, Freddie Mac said it expects to provide liquidity to the market during a weaker economic environment, maintaining its volume as other financial institutions pull back from the market.