A recent mid-year report released by lending giant Freddie Mac revealed that their review of the multifamily industry also meshes with other recent reports, such as Yardi Matrix (as we wrote about here). The Freddie Mac report cites the current healthy economy as helping to support the strong showing seen by multifamily at this point in the year. We share more of Freddie’s highlights in today’s Friday edition of the BAM Blog…
Click here to read the Freddie Mac report in its entirety. According to their data:
- The multifamily market saw a stronger start to the year than expected, and has seen continued solid performance throughout 2019 so far. Freddie credits both impressive economic growth and a good job market for keeping multifamily strong.
- Both higher interest rates and rising home costs had the consequence of making renting more affordable. Although there is a large supply of multifamily, the report notes it shouldn’t be a problem due to the national housing shortage.
- The report states that lower interest rates and demand for investment will support higher origination demand.
- The report notes that the multifamily market remains in a good spot to absorb much of the new rental supply. Although multifamily new construction is underway across the country, there’s still a shortage of overall housing. Despite the housing market being what Freddie terms “unbalanced,” the report notes that it isn’t an oversupply problem as the economy tries to build enough housing.
- The Freddie report is optimistic, saying that the strength of the labor market will keep supporting the housing market – both in single- and multifamily. They cite unemployment at lows of 3.7%, with 1 million new jobs being added as of June.
- The Freddie report also notes that although there may be some wage growth, compared to previous economic growth periods, wage growth may be lower.
- According to Freddie’s data, thanks to consistently low cap rates, multifamily price appreciation has moderated in the last few quarters. Although prices grew 7.3% in the last year, Freddie says that 10-12% growth is likely behind us with less growth moving forward.
- Even in the event of an economic slowdown, the Freddie report suggests that rental demand is expected to remain steady. As new rental units are completed, the report notes that vacancy may rise but only barely.
- Construction rates are elevated in metro areas, while vacancy rates are lower. Within the past few months, Houston, Dallas, and Baltimore have seen the biggest jump in multifamily construction.
- Freddie projects healthy rent growth, although not as strong as seen last year. 2019 rent growth is projected at 4% and 2020 is projected at 3.6%.
The BAM Bottom Line: As with other multifamily reports we’ve seen this year, the multifamily market continues to perform well. Demand remains high, the multifamily market is supported by strong job growth and other economic factors, and is anticipated to remain healthy for the rest of 2019. The Freddie report suggests that the performance could carry through into 2020. Due to demand, there isn’t an immediate risk of oversupply, and no anticipation of immediate threats to the multifamily market’s good weather.