Multifamily Nearing Pre-Pandemic Trends

Demand for multifamily housing now exceeds pre-pandemic levels, and Freddie Mac Multifamily projects rising rents, falling vacancies and a record-setting origination market in 2021.

Steve Guggenmos

“We believe the multifamily market will continue to grow in the second half of 2021 as the country and the economy rebuild after the challenges brought on by the COVID-19 pandemic,” said Steve Guggenmos, Freddie Mac Vice President for Multifamily Research and Modeling.

Guggenmos said continued strength across the Sun Belt and in Midwestern markets support the Freddie Mac Multifamily forecast, and larger coastal markets are starting to see a slow recovery from the pandemic-driven downturn. “Larger gateway markets continue to feel the impact of the pandemic, such as New York City and San Francisco, but the majority of markets will continue to see rent growth through the rest of 2021,” he said. “Underlying demand drivers will support strong multifamily market fundamentals and have set a foundation for continued growth as economic conditions improve.” noted the pandemic created some softness in the rental market last year, “but 2021 has brought the fastest rent growth we have on record in our data,” the firm said in its latest National Rent Report. “Nationally, and in nearly all individual cities across the country, rent growth in 2021 has exceeded average growth rates from pre-pandemic years.”

Apartment rents remain below pre-pandemic levels in just a handful of cities, said. “And even in markets like San Francisco and New York where ‘pandemic pricing’ is still in effect, prices are quickly rebounding,” the report said. “More broadly, rental inventory across the nation remains tight and as economic recovery continues to gain momentum, we may be seeing the release of pent-up demand from renters who had been delaying moves due to the pandemic. Whereas last year’s peak moving season was halted by the pandemic, this year’s seasonal spike is more than making up for lost time.”

As apartment investment activity picks up steam, Freddie Mac now forecasts overall multifamily origination volume will continue to rise in the second half and could approach a record-setting range of between $385 billion to $410 billion over the full year.

The Freddie Mac Multifamily Midyear Outlook also said:

–Demand for multifamily housing now exceeds pre-pandemic levels. “Rapidly improving economic conditions and enhanced unemployment benefits that have helped stabilize renters’ incomes have increased demand for multifamily housing,” the report said. “Multifamily construction projections for 2021 are mixed, but they should remain elevated even if they don’t exceed 2020 totals.”

Separately, the federal government’s eviction moratorium is scheduled to expire July 31, and Freddie Mac’s recent research paper, Transitioning to Post Pandemic Normal, said federal assistance is “likely sufficient to meet the needs of renters affected by the pandemic so long as those funds are accessed in a timely manner.”

–The apartment market forecast turned positive due to an improving economy. Freddie Mac said nearly 90 percent of metros will likely see positive rent growth in 2021, with a few major exceptions including large gateway markets New York, San Francisco and Miami, which will likely continue to see negative income growth. Boosted by a strengthening economy, the national multifamily vacancy rate could decrease to 5.0 percent and rents could rise another 2.5 percent this year.

–Investor demand remains strong: Multifamily market performance throughout the pandemic continues to drive strong investor demand, Freddie Mac Multifamily said. Total multifamily originations for 2021 are expected to hit record-setting numbers in the range of $385 billion to $410 billion.