If you were to focus solely on the slowing pace of rent gains, burgeoning supply and the rise in interest rates, you might assume that the real estate market isn’t in a strong place right now. But despite all of the above, the multifamily market is in a healthy position. Demand is being driven by encouraging demographic shifts and a strong economy. Despite moderating elements, because the economy is healthy, the apartment market is similarly healthy, even if the boom from earlier in this economic cycle has tapered off.
GDP growth came in at 2.3% for the year in 2017, and a whopping 4.2% in Q2 2018. Consumers are buying confidently provided that tax cuts will improve yearly income even despite stagnant wage growth. Our multifamily clients are anticipating that U.S. rent growth should maintain its current pace, largely thanks to cities in the South and West, where supply hasn’t outpaced demand.
According to the Spring 2018 Yardi Matrix U. S. Multifamily Outlook report, given the state of supply and demand in most metro areas and the steady economy, rents are projected to increase by 2.9% nationwide this year, with heavy concentration in late-stage southern and western U.S. markets. However, concerns about affordability are keeping prices from rising at an exceptionally fast rate, and new supply is also helping to keep those costs level. As for the supply, completions are expected to maintain the same steady pace they have over the past few years. Absorption rates are anticipated to remain strong for the remainder of the year, and 290,000 additional units are expected to finish construction by 2018, resulting in a 2.2% increase of stock. Another big factor that’s supporting the real estate market is the steady flow of capital pouring into the industry.
Given all this, the outlook for multifamily units remains bright and stable, barring unforeseen risks, in most locales. Real estate investment requires assessing local markets, so analyzing the data from individual property markets is always wise.
Opportunities And Risks For Multifamily Developers
The economy appears to be in a healthy state. Reduced taxes from the recent Tax Cuts and Jobs Act and the booming equity markets combined to increase consumer confidence in the early part of the year. Last year’s 2.3% increase in the GDP was driven largely by business investment and exports, according to the Yardi report. However,…