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Single-family shortages help fuel multifamily strength

While a lack of housing supply has been an ongoing issue for the single-family market, it also has played a part in the continued strength of the multifamily-housing sector, according to a new report from Freddie Mac.

Freddie's Multifamily 2019 Midyear Outlook reported better-than-anticipated multifamily market performance to end 2018. That performance was driven by decreases in both supply and affordability in the single-family sector, making rental housing comparatively more affordable. And although the first quarter of this year was slower — due in part to falling mortgage rates that helped affordability for homebuyers — preliminary second-quarter data indicates that the spring leasing season was relatively strong.

“A strong labor market and a persistent housing shortage have continued to fuel a robust rental market,” said Steve Guggenmos, head of Freddie Mac Multifamily’s research and modeling team.

With rental demand steady and new inventory consistently being created, developers are taking advantage of the low rate environment, putting multifamily originations on pace to grow to $336 billion in 2019. And even though total volume figures for 2018 won’t be available until this fall, that’s an estimated year-over-year increase of 8%.

Guggenmos added that, as of this past June, year-to-date multifamily completions surpassed that of each of the prior two years. Absorption of the new supply remains strong thanks to high demand in most U.S. markets. Annualized absorptions increased to 327,000 units in the second quarter, with the occupancy rate at 95.9%, up 50 basis points on an annual basis. Rent growth continues to outpace the inflation rate and is expected to increase by about 4% in 2019 and 3.6% in 2020.

And despite some rumblings of potential economic distress on the horizon, Freddie Mac wrote that “the current trajectory of the economy does not indicate any looming headwinds that would cause major disruption to the multifamily market.” If interest rates remain low, that could push more households toward ownership rather than renting, but Freddie doesn’t anticipate rates to substantially impact the rental market, due to aforementioned shortage of single-family homes.


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