Navigating Challenges in the Multifamily Housing Market
Authored by James Martin, VP of Operations at GoDocs
During the most recent NPLA meeting, Jesse McConnico, Housing Analyst from John Burns Research and Consulting, gave a presentation on navigating challenges in the multifamily housing market. The session provided valuable insights into the current state of the industry and its prospects.
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Changing Demographics Impacting Housing Trends
Young adults are leaving their parents’ homes to create new households, contributing to rental demand. The trend of getting married later in life is supporting demand for rentals, surpassing historical norms.
Market Dynamics
The current state of the apartment market is experiencing an imbalance between supply and demand. Due to the high cost of homeownership, many people are still opting to rent, keeping the demand healthy. While the demand for rental units is still high, the supply is growing at a faster rate, which is affecting rent growth across the country, leading to flat national rent growth. Some cities like Atlanta, Austin, and Phoenix are experiencing negative rent growth due to the excess supply of apartments.
In 2021, the occupancy rate hit record demand, but it has now dipped below 95%, causing concern. Only half of the units delivered in 2023 have been occupied, emphasizing the need to carefully consider the types of units introduced to the market.
Debt has become harder to obtain, restricting development. Multifamily loan demand has dropped by 50%, indicating tightening lending practices by banks. Nevertheless, Single-Family Rental (SFR) rent growth rates continue to have a positive trend as a more stable asset class.
Market Forecast
John Burns is forecasting fewer multifamily residential starts through 2024, with the possibility of a turnaround in 2025-2026. Apartment completions are at their highest in decades, contributing to a pessimistic outlook. Capital investment in the apartment sector has also decreased, leading to fewer transactions and an increase in capital rates by 110 basis points year over year. Additionally, the volume of build-to-rent deals has dropped significantly, indicating that only a few of these opportunities are financially viable. Furthermore, the purchase of single-family residences has slowed down, with a 35% year-over-year decrease in the total number of transactions.
In summary, the multifamily housing market is facing challenges such as oversupply, tightening lending practices, and declining demand, leading to a cautious outlook for the coming years. Developers and investors are advised to carefully assess market conditions and adjust their strategies accordingly.
Author Bio:
GoDocs is an innovative leader in automated loan document generation, transforming the commercial lending process. With a fully cloud-based platform, GoDocs provides a flexible digital solution that makes commercial loans more cost-effective to document and faster to close, all while maintaining compliance in all 50 states. GoDocs is a Corporate Member of the NPLA.