Not to be outdone by other midyear prognostications, Freddie Mac recently released a mid-year outlook specifically for the multifamily industry. To see the Freddie Mac outlook in its entirety, click here for a the full report: 2018-mid-year-outlook-report. We look at what’s gone right for multifamily this year and what’s coming down the road this year and beyond, in today’s edition of the BAM blog…
- The economy has seen housing supply overall sit at a ten-year low for single-and multifamily. The multifamily supply is reaching 30-year highs and will peak sometime next year (2019).
- Demand will stay steady but will remain below supply level. This will cause vacancy rates to climb slightly and rental growth will moderate in 2019.
- The current market path doesn’t indicate anything coming down the road that spells major disruption for the multifamily market, excepting anything that could affect the entire economy as a whole.
- Although job growth is expected to slow, wage growth is anticipated to rise – which will likely spur more household development.
- The new tax bill may also favor renting over home ownership.
- Absorption of new supply will be strong the next few quarters but won’t hit the supply mark. This will lead to vacancy also rising over the same quarters. Vacancy rates should level off by the end of 2019.
- In metro areas, rent growth is anticipated to remain above historical averages in most markets.
- Most metros can expect to see rent growth above the target inflation of 2%. (New York City is their only noted metro exception.)
- Overall, there is a national housing shortage, which helps drive demand for multifamily housing.
- Some metros are seeing a surplus in overall housing within the past year, like Austin, TX.
- In the decade after the Great Recession, the multifamily market keeps a healthy overall performance.
- Rents are above inflation with vacancy slowly rising, with fundamentals moderating over the past few years. Metro areas and submarkets may see a more dramatic impact.
- Returns are expected to revert to modest growth, capping what developers will build and help balance the multifamily market.
- Strong demand due to housing shortages and lifestyle factors will help mitigate oversupply issues over the next few quarters.
The BAM bottom line: It comes as no surprise that there is still oversupply in many areas, but there is also a strong demand to help balance that out somewhat. Some factors like the tax bill may also help increase rental households. According to the mid-year outlook by Freddie, vacancy rate increases should slow by the end of next year and rent growth will moderate. Overall, a fair outlook for the multifamily industry for the remainder of this year and next.