Wednesday, October 19, 2011

Multifamily Sector Shows Positive Movement

While the homeownership rate falls, rental demand rises bringing rental rates up and apartment vacancies down – all of which has led Freddie Mac’s chief economist to label the multifamily sector “a positive signal for the U.S. housing industry.” “[T]he improvement in the economics of apartment management has prompted an increase in structure values, property sales, and new construction for larger buildings,” states Freddie Mac’s chief economist Frank Nothaft in his October U.S. Economic and Housing Market Outlook. After a 32 percent drop from 2008 to 2009, the’ U.S. apartment values rose 18 percent in the first quarter of this year, Nothaft reports, referencing the National Council of Real Estate Investment Fiduciaries apartment value index. This rise is a result of the fact that many newly-formed households are choosing to rent rather than own in the current, unstable economy, according to Nothaft. From June 2010 to June 2011, the number of households renting rose 4 percent with an additional 1.4 million households moving into rental units, according to the Census Bureau. At the same time, the homeownership rate fell by 1.5 percent to 65.9 percent, according to the Bureau. Freddie Mac notes the decline in homeownership has been greatest amongst the under-30 population. Compared to the national average of 1.5 percent, homeownership amongst those under 25 years of age has declined by 4.4 percent, and by 7 percent amongst those between 25 and 29 years of age, according to Nothaft. This decline in homeownership has translated to a decline in apartment vacancy. Nothaft points out the Census Bureau’s recent finding that in buildings with at least five units, vacancy rates have fallen to 10 percent during the second quarter of this year. This is the lowest vacancy rate among these properties in more than five years. Additionally, a survey by A Reis Inc., found the vacancy rate among professionally managed buildings in metropolitan areas was 5.9 percent as of the second quarter of this year. This is the lowest vacancy rate for these properties since 2007. As demand for apartments increases, so do prices. “Apartment rents, which have been flat to falling in many projects during the 2008-2009 recession, have begun to rise, albeit slowly,” Nothaft states in his outlook. According to Nothaft, rental property sales and multifamily lending are both increasing, and there has even been a rise in construction in this segment. Measured in dollars, rental property sales volume reached its highest level since 2007, according to Red Capital Analytics. Nothaft attributes the rise in originations among multifamily properties to low mortgage rates as well as the return of traditional lenders to the market. In fact, The American Council of Life Insurers reported 165 apartment loan commitments for the second quarter of this year. This is the largest multifamily commitment by a single insurer in 39 years, according to Nothaft’s outlook.

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