Apartment Transaction Volume

The frantic apartment transaction market of the past few years may finally be slowing.

With $9 billion in transaction activity in July, apartment sales fell 17%, according to New York–based commercial research firm Real Capital Analytics (RCA).

RCA attributed the decline in apartment sales activity to a drop-off in portfolio and entity-level transactions, which fell 65% to $1.2 billion. But RCA noted other problems as well in its report.

“There are signs of weakness in the sale of individual assets, the bedrock of the market,” RCA said in the report. “Volume growth for individual asset sales slowed down in June and turned to an actual decline in July. Sales volume for individual assets came in at $7.8 billion in July, a pace down 4% year over year.”

Both high-rise and garden apartment saw slower sales in July with garden properties falling 12% year over year, and mid- and high-rise properties declining 24%. Entity and portfolio sales in the mid- and high-rise sector fell 73% year over year to $36 million. On individual transactions, garden apartment sales declined the most—dropping 4.3% year over year to $4.8 billion. 

RCA speculates that the decline in volume might mean that buyers are balking at prices that have now passed peaks from the previous cycle. 

“This slowdown to decline in volume may well be a function of price resistance in the apartment market in the face of record-low cap rates,” RCA wrote in the report. “Average cap rates in July came in at 5.9%, down 20 basis points from a year earlier and also down 20 basis points from the previous low-water mark before the Global Financial Crisis.”

Josh Goldfarb, managing partner of Atlanta-based brokerage firm Multi Housing Advisors, has another explanation for the decline.

“The summer months have typically been a slower time due to investors’ summer travel plans as well as the post-spring slowdown of inventory,” he says. “Typically, the early spring represents the best time of year to sell as properties hit the prime leasing season, coming out of winter. Going into the fall months, inventory picks up again as a last push to get properties off the books before the holidays.”  

Despite potential overpricing fears, apartment prices measured by the Moody’s/RCA Commercial Property Price Index continue to rise, moving up 15% from the first half of 2014 to the first half of 2015. RCA says Florida, California, and the Southwest saw increases from 17% to 38% year over year. San Francisco and New York—two of the priciest housing markets in the country—saw prices rise from 24% to 29% year over year.