Multifamily performance is expected to remain sluggish for the rest of 2024, as the market works though the historic levels of new supply coming online, according to Freddie Mac’s 2024 Midyear Outlook.
The outlook noted that the economy is doing well, helping create strong demand for multifamily housing. However, below-average rent growth and a modest increase in vacancies are forecast because of the continuing supply and demand imbalances.
“Although new supply is at a nearly 40-year high, that headwind will be short-lived and is typically located in areas with high demand,” said Sara Hoffmann, senior director of multifamily research at Freddie Mac. “That will cause multifamily performance to remain subdued this year, but, over the longer term, the multifamily market appears primed for growth due to an overall shortage of housing, an expensive for-sale market, and favorable demographic tailwinds.”
Highlights from the midyear outlook include:
- Freddie Mac’s forecast predicts rent growth of 2.7% for the year and the vacancy rate to increase to 6%. This equates to gross rental income growth of 2.5%;
- The new-unit deliveries are concentrated in the Sun Belt and Mountain West regions, areas that have seen strong demand post-pandemic;
- Performance will vary metro by metro, with projections favoring secondary and tertiary markets that are seeing lower levels of supply;
- The markets that saw skyrocketing rent growth in 2021 and 2022 and are now seeing higher levels of supply deliveries are projected to be among the weakest performers;
- With interest rates remaining elevated, cap rates also have steadily increased. This has led to a cap rate spread that is less than half the long-run average going back to 2001 and property prices falling from their highs in 2022; and
- If market conditions stabilize during the second half of the year, transaction volume for multifamily could rebound modestly from 2023 to approximately $320 billion.
