Recent reports chronicling the economic condition of the multifamily marketplace at midyear shows a mix of good and bad news. According to Berkadia’s National Trends Multifamily Report for Second Quarter 2019, the current occupancy rate is 95.7%, which is up 30 basis points as compared with 2Q 2018 while effective rent is up 3.1% for the same period. Berkadia attributes the multifamily good news to the high cost of homeownership.

“As the cost of homeownership continued to rise across the United States, renting remained the preferred housing option. At $280,200 in May 2019, the median sales price of existing single-family homes advanced 4.6% year over year. At the same time, home sales velocity decelerated 1.1%, suggesting many Americans were priced out of homeownership.”

Berkadia also notes a rise in leasing activity as residents newly occupied 330,531 net units since mid-2018, up from 323,064 units absorbed during the year prior. Developers have been responding to the need for more apartments by adding nearly 290,000 new units to the nation’s multifamily housing stock, a rise of 3.6% higher than the number of units added during the previous five years.

Absorption grew faster than inventory, which helped pump up the occupancy rating. Higher occupancy then led rents up the ladder to the current average of $1,388. The top five markets for rent growth are Las Vegas, Phoenix, Tucson, Reno, and Atlanta. The top five markets for occupancy are Los Angeles, Minneapolis, New York City, Ventura County, and Detroit.

While the overall rental business is strong, Real Capital Analytics is reporting that the buying and selling of apartment communities was off in May and trending flat for the year. Transaction volume for the month was measured at $11.9 billion, which is a drop of 22% in volume as compared with last year. Real Capital Analytics drills down into building types to reach other conclusions about what’s moving and what’s not.

According to its U.S. Capital Trends – Apartment Report, “there has been more of a preference for mid-/high-rise segments in this cycle, an inclination that continues to deliver record high levels of sales. While sales of mid-/high-rise assets fell 21% YOY in May, deal activity for the year to date stands at $20.7 billion. This pace of activity is ahead of the pace set in the first five months of 2018, though it is unclear that deal volume for the year will exceed that set last year given the volume of entity-level sales late in 2018.”

About 35% of all the deal activity for the year has been concentrated in the mid-/high-rise segment. The same building type only accounted for 28% of all the deal activity recorded from 2004-2007. The news is slightly worse for garden-style apartments, which saw sales fall 22% YOY in May. Sales volume for the garden variety are also showing an off year as compared with 2018.

Real Capital Analytics believes commercial real estate growth is slowing for residential with more dollars flowing toward industry. “The apartment sector had been the leader for price growth over the last two years but has ceded that position to the industrial sector. Prices are growing for apartments, but at a decelerating pace.”