Economic uncertainty abounds with interest rates on the rise and inflation at 40-year highs. While the multifamily industry has seen healthy fundamentals over the first half of the year, Freddie Mac forecasts that the pace of growth will begin to moderate for the remainder of 2022.
According to Freddie Mac Multifamily Research Center’s Multifamily Midyear 2022 Outlook, the government-sponsored enterprise expects origination volume to be $440 billion to $450 billion, down 8% to 10% from last year’s peak, driven by the macroeconomic headwinds, including rising rates and inflation.
“We believe the multifamily industry is well positioned to weather the economic uncertainty and interest rate volatility impacting the broader economy throughout the rest of the year,” said Steve Guggenmos, vice president of multifamily research and modeling at Freddie Mac. “While we expect total volume projections will be down in 2022, rent growth and occupancy will still remain above their long-run averages.”
The multifamily sector has shown strength through the first half of the year, with every market experiencing rent growth of at least 10% since January. Rent growth was still high as of June, totaling 16.1% year over year, according to RealPage data. Occupancy hit its highest quarterly level since 2000 in the first quarter at 97.6%. However, that figure has moderated to 96.3%.
According to the outlook, Freddie Mac expects gross income growth to also moderate throughout the remainder of the year. However, it’s still on pace to outperform year-end inflation projections. Gross income growth this year is expected at 6.8%, and vacancy rates are predicted to remain flat at 4.8%.
The top markets by gross income growth this year are generally secondary and tertiary markets in the Sun Belt, including Florida’s Fort Lauderdale, Jacksonville, Orlando, Tampa, and West Palm Beach. Other markets slated for income growth are Albuquerque, New Mexico; Phoenix and Tucson, Arizona; Memphis, Tennessee; and Raleigh/Durham, North Carolina. Those at the bottom include some smaller markets in the Midwest as well as a few gateway markets.
Looking ahead, the economic volatility will have more of an impact on the transaction side of the multifamily business. “A steep rise in Treasury rates may push potential deals to the sidelines as borrowers wait out the volatility,” according to the report. “Given the strength in rents, many financed properties are well positioned to cover their debt payments. As such, borrowers are not pressured to sell properties at a lower price point and may wait for more favorable investment opportunities, slowing overall business volume.”