Yardi Matrix Shows U.S. Multifamily Market Wrapping Up a Strong Year

A report from YardiMatrix last month shows that 2019 was a solid year for the multi-family real estate. The demand for multi-family housing remains high across the united states. Although the winter seasonal slowdown clipped $3 off the average rent in the month of November, rents were up 3.1 percent Y-O-Y, rent growth exceeded 3 percent since the spring of 2018 because of the strong and consistent demand. The report from Yardi projects seasonal rent growth slowdown to extend through the first few months of this year.

Early 2019, Freddie Mac’s multi-family research found that the performance of the multi-family market remained very healthy during 2018, that holding true despite the high levels of new supply entering the market. It was expected that the trend would continue into 2019, but with some more modest growth in comparison to recent years. Could it be that 2020 market behavior will be a replica of 2019? more than 320,000 new multi-family units have already been absorbed so far in 2019, making it the sixth year with at least 250,000 new multi-family units absorbed. Seattle, Denver, and Dallas had the highest number of multi-family absorption, followed by Houston, Austin, Texas and Washington D.C.

“Fundamentally, occupier demand is strong, and rents continue to grow in most segments,” the report said. “Meanwhile, property values are at all-time highs and debt markets are functioning smoothly, with healthy deal flow and few delinquencies.”

In the 3rd quarter of 2019, multi-family vacancy fell to 3.6% down 40 basis points from 2018. This is the lowest level since 2000, according to another report from the CBRE. Judging by the two reports, it looks like 2020 will be another good year for the multi-family market as renting is not an option for most people.

Of the top 30 metro markets, those in the Southwest and West have seen the strongest Y-O-Y rent growth. Phoenix records the highest rent growth at 7.5%, followed by Las Vegas at 6% and Sacramento at 5.3%. In the Southeast region, Raleigh and Charlotte, N.C., led at 4.6% each. The high growth market in the Midwest included Indianapolis at 4% and the Twin Cities at 3.7%. San Jose saw the lowest rent growth recording a YOY at 0.1%, followed by San Francisco and Houston, both at 1.4%.

Another report from Zumper notes that 32% of the respondents said that they do not believe the American dream includes homeownership, and 20% said they do not plan to buy a home in their lifetime.

“Overall demand in all of these markets remains extremely high, and none have extreme winters, so the pattern doesn’t have an obvious explanation,” the report said. “Rents may be affected by new deliveries that tend to come online in the fall. Job growth and in-migration continue to be strong in the Pacific Northwest, so we would expect rent gains to picking up again in the new year.”

On the national level, rents rose by 0.1% on a trailing three month (T-3) basis, which compares the last three months with the previous three months. In 18 of the top 30 markets, rent growth was flat or negative by this measure and flat nationally overall. Leading the market in T-3 rent growth at 0.4% where the counties of Orange County, California, and Phoenix, while San Jose (-0.8%), as well as Seattle and San Francisco (-0.4%), fell fastest. Overall, warm markets saw the highest growth while the tech-centric and gateway markets saw declines.

For almost a decade now, commercial real estate’s positive cycles have held, with strong occupier demand and strong rent growth in most of the market segment. The property values are at their highest value, debt markets are functioning while the deal flow is very healthy. However, despite this Yardi says there is fear about the uncertainty of recession.

Underwriting is very tight and the margins of error are very narrow and the high-risk assets are not generating many premiums to investors. Instead, the rates of the short-term bond have topped long-term rates recently, which going by the historic standards have precluded a recession. The GDP growth has waned, the tax cut stimulus has faded. With the trade tensions, business investment across the US is struggling and the supply chain uncertainty ongoing. This comes amidst the high consumer confidence, a tight labor market, and growing wages.

Yardi notes that some of the catalysts for an economic downturn may include corporate debt which has grown, a global economy that has been weakened by the national market, or even the ongoing uncertainty, more so given the presidential elections that are upcoming. For now, the economy is projected to expand at a 2% -plus the real rate.


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