Real estate players need to prepare for another round of adjustable-rate mortgage resets at the end of the year that will likely total $1 trillion and push the average monthly adjusted-rate mortgage payment up approximately $1,500, said Christopher Wimmer, vice president and senior analyst for New York City-based Moody's Investor Service.
Wimmer joined Jerry Brewer, senior vice president and corporate treasurer for Charlotte, N.C.-based Colonial Properties Trust and C. Stephen Cordes, managing director of New York City-based ING Clarion for an investor forecast panel. Moderated by Thomas Toomey, president and CEO of Highlands Ranch, Colo.-based UDR, the panelists focused on how the shifting dynamics will affect the apartment markets.
The ARM resets will likely mean additional single-family foreclosures, the panelists said, noting that this would not only add to the national pool of rentals but also increase the size of the shadow rental market. Despite the expectation that interest rates will rise steadily as growth in net operating income for multifamily apartment properties erodes from 3 percent to 4 percent down to 2 percent to 3 percent, the panel was upbeat in its assessment of multifamily business metrics.
In addition, the panelists emphasized the benefits of investing in development pipelines, as well as value-add acquisitions. "We have some cyclical issues to deal with," said Cordes of the current market scenario. "But the long-term demographics for the multifamily industry look very good."