The economists at the Multifamily Executive Conference’s annual Economic Roundtable and State of the Industry panel are optimistic that the country won’t experience a double-dip recession.
“There’s no reason why the economy shouldn’t continue with its current weak growth trajectory,” said Ryan Severino, senior economist at Reis, who was joined on the panel by John Chang, vice president of research services at Marcus & Millichap and Jeff Meyers, a principal with research advisory firm RealFacts/Meyers.
Chang cautioned, “The possibility is out there to dip into negative territory because there is a list of potential factors out there. But it will take a major shock to the system.”
Up front among those potential factors is the job market. While all three panelists announced that they were looking to staff up and increase office space, they were quick to point out a continued disconnect between the general economy and apartment fundamentals.
Severino, however, said the picture is starting to look up. He pointed to data on household formation, saying that from 2007 to 2011, 25.5 percent of 25-34 year olds were living with their parents. But that number started to pull back significantly in 2011, as these young adults looked to move out, form their own households, and ultimately feel more confident about their job prospects. Of all the age brackets, the 25-34 year old cohort is the only bracket seeing sizable job growth.
On the transactional side, Chang said the recovery is also not evenly spread out. “This recovery is not treating all properties equally. It’s not treating all markets equally,” he explained, pointing to the high compression rates that cap rates in primary markets and Class A properties have seen, compared to non-core assets in secondary or tertiary markets.
Meyers supported Chang’s assessments, pointing to investment levels by U.S. focused funds, which have been largely targeting income properties in their investment. “Multifamily is the food group of choice among investors,” Meyers said.
Rent growth reflected a similar disparity in location, though ultimately trended positive across the board. Meyers pointed to their index of the top markets—those projecting 6 percent annual rent growth—and the roster included core markets such as San Francisco, Washington, D.C., Seattle, New York, Austin, Texas, Baltimore, and Boston. Meanwhile, mid-level markets with 3 percent annual rent growth included Orange County, San Diego, Dallas, Los Angeles, Denver, Chicago, Miami, and Phoenix. Even troubled markets such as Las Vegas, Detroit, and Tampa will likely see rent growth of 1 percent in the next year.
Much of the reason for the boost in multifamily fundamentals and transactional activity is the continuing decline of the single-family market. “The biggest thing we’re seeing out there is fear and uncertainty, and that has worked against the single-family market,” Chang said.