Why Multifamily Is In A Good Spot

TruePoint Capital

Prediction:

Limits to supply of housing due to delays in new construction from labor and materials. will limit new construction. This will keep both rents and home prices strong.

The markets for apartment rentals and home and condo purchases usually move in opposite directions, with a strong housing market generally accompanied by soft rental markets and vice versa. However, since the Financial Crisis, as the real estate market recovered and housing demand steadily increased over the past decade to where in 2021, the housing market saw significant price growth. Instead of trending in the opposite direction, demand for rental real estate kept pace – bucking conventional wisdom.

This parallel path between home and rental growth continued during the pandemic as the desire for more mobile working, learning, and living space grew out of lockdowns, social distancing, and work and learn from home initiatives. The result has been the rise of both the rental and ownership markets to record highs in 2021.

Multifamily is in a good spot because even as the demand for homeownership has grown, there will always be growing demand for apartments because of a lingering supply shortage – especially in the lower and middle tiers – that has pervaded since the Financial Crisis. Now, with construction delays and a lack of new supply, rental demand isn’t expected to wane anytime soon.

On the homebuying front, affordability is creating growing challenges for many households and is likely to slow home price appreciation. Home price growth may moderate in 2022, yet houses/townhouses are still not affordable for most Americans. Should mortgage rates rise further, we could see even slower home growth.

While home prices are expected to taper, multifamily rents, on the other hand, are not expected to slow. This is due to multifamily’s resilience and the gap between supply and demand.

The multifamily segment was relatively resilient during the 2020 recession with low vacancy rates and high rental collection rates, despite the negative impact of lockdown measures and remote working arrangements.

Global investment firm CBRE expects declining vacancy rates over the next 12 months, which will lead to solid rent growth. Continued labor and materials shortages and the expiration of eviction moratoriums only strengthen the prediction for rising rent prices.

Multifamily has demonstrated its resilience through two recent and significant crises – the Global Financial Crisis and COVID-19. Now, with inflation fears mounting, multifamily investments seem to be ideal for tackling this next crisis.

With ongoing supply shortages, vacancies are of little concern, especially in the affordable and mid-level housing sectors. 2021 has demonstrated that as prices rise and rents along with them, demand remains stable – making multifamily the ideal asset for a recession-proof and inflation-insulated portfolio.