A growing supply of housing, volatility in the marketplace and risks in the development process all affected the multifamily market in 2018. In 2019, these three factors will continue to move the needle.
The Housing Supply
Markets like Boston, Seattle and Nashville are growing supply faster than demand. From 2015 to 2017, developers were building like crazy and landlords were enjoying rent increases of 5-7% year over year. They built too much, and the peak has showed itself. Only top markets like Atlanta and Charlotte can justify their cost of living increases. The rest will likely see slower growth and possibly losses in rent values and occupancy rates.
Market Volatility
Secondary markets are experiencing problems in their local economies, which is driving away the multifamily market. Fewer jobs means less security. Most multifamily clients are looking for stability, and they move into and out of markets based on that. Experts are predicting a consolidation of these families into larger markets.
Interest Rates
The volatility in the market has been accompanied by higher interest rates, which makes money harder to borrow. The seller’s market has held out for so long that a turnaround was almost inevitable, and most experts agree that the current trend is more than just a short term hiccup. We are looking at a real market correction.
The Effect
These three variables come together to create a multifamily market that is looking better for buyers than it has in a long time. Entrants into the market who have been waiting for a price dip began to see it in the latter part of 2018. All signs point to this price trend continuing into 2019.
Just as important as price is location. Although multifamily units will probably be in high supply in secondary markets, these units will be more difficult to fill. What you may see is a consolidation towards markets like Atlanta and Charlotte from multifamily buyers as well as renters.
You may also see speculators who choose to purchase in secondary markets and wait for a turnaround. In both cases, you can probably expect a more balanced overall landscape that will eventually stabilize into market values that are anywhere from 10 to 35% off peak.
Talk with your trusted home mortgage professional to discuss the financing opportunities in 2019 for your local market.
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About the Author:
Babak Moghaddam graduated from University of Southern California in 1985. He entered the mortgage industry as a compliance auditor at the Bank of New York in 1986 and completed his masters in Business Administration two years later. After seventeen years in the traditional mortgage banking world Babak finally transformed this vision into his own practice in 2002 when he formed Charter Pacific Lending Corp, a mortgage company that has provided over $900 Million in residential real estate loans throughout Southern California. Babak and his team do things a little differently than other mortgage providers. They work as financial advisors, because they have come to realize that a mortgage is a very powerful financial tool. And just like any other financial tool, it should be managed as part of the overall financial management plan to reach every home owner’s long and short-term financial goals much faster. You can contact Babak for a free consultation and strategy session at (800) 322-1217 X103.