A positive (for now) outlook for multifamily heading into 2019

Positive outlook for multifamily in 2019
by Team Stessa, posted in Newsletter

It’s been a new year full of distractions from the government shutdown, to cooler predictions for housing in 2019, but we have some positive news for multifamily investors. We reported a few weeks ago on the strong sentiment within this sector, and this week there is even more data suggesting multifamily may be in for a strong 2019.

IvyLee Rosario of Multi-Housing News reported that “after a positive performance throughout 2018, the multifamily industry shows no means of slowing down.” Rosario points to two main drivers for this: average rent increase of 2-3% nationally, and construction deliveries of 300,000 new units—marking the fourth year in a row to hit this range.

Source: Yardi Matrix

Jay Madary of the National Real Estate Investor reports on multifamily in the Midwest, noting that “rising interest rates, and a possible slowdown in new construction are likely to keep apartment occupancies stable and rents growing.” However, the rising interest rate prediction isn’t a commonly held one at this point among commentators, with many believing rates will continue to drop into 2019.

MultiFamily Biz outlines a word of caution however, noting that “Residential building in December was $300.6 billion (annual rate), down 8% from the previous month. Multifamily housing retreated 15%, slipping for the second month in a row after a 19% gain in October.”

Rosario points to challenges for multifamily investors and developers, specifically, “finding candidates to fill open positions—due to the number of openings being larger than those unemployed—and wage inflation, which is continuing its positive momentum growing 3 percent or more starting towards the end of 2018.”

The middle is suffering

Redfin released interesting data last week outlining the growing housing challenge for middle-income earners in major US metros. They report that, “Although the number of homes for sale is increasing rapidly in some markets, the number of affordable homes for sale is falling.” For the below data, Redfin used median income for each metro, assumed a 20 percent down payment, an interest rate of 4.64 percent for 2018 and 3.95 percent for 2017, and a monthly mortgage payment no more than 30 percent of gross income. Here’s what they found:

Source: Redfin

Redfin Chief Economist Daryl Fairweather comments, “Homeownership is increasingly out of reach for the typical American. Over the last few years, builders have focused on luxury homes, and there hasn’t been enough construction of affordable starter homes.”

In commenting on the Redfin report this week, CBS News points to earlier data from ATTOM Solutions noting that “it’s more affordable to rent, rather than buy, in 93 percent of larger counties around the U.S. (those with populations of at least 1 million).

As the reports in the first story indicate, real estate investors could see rising rents and decreased vacancies heading into 2019 as new construction slows and affordability worsens. As middle-income families put off homebuying, investors may experience more stability this year.

Average age of homes in U.S.

This week Spencer White of The Basis Point reports on National Association Of Home Builders (NAHB) data, which shows that “most of the houses out there in the U.S. are old and decrepit, and builders haven’t been putting up enough new houses to replace them.”

Source: The Basis Point

Also of note, is the fact that the NAHB predicts that 45% of homes on the market by 2037 will still have been built before 1970. And current US homeowners aren’t keen on remodelling and renovations either.

Diana Olick from CNBC adds to this discussion noting that home remodelling growth is expected to drop this year because home values aren’t gaining as much (less equity to play with), mortgage interest rates are rising, and fewer homes are selling. For all you house flippers and value-add investors out there, you could be looking at decades of ample supply!

New! Net cash flow chart

We’re excited to announce that today we’ve enabled a new Net Cash Flow chart at the portfolio level for all Stessa accounts! Visit your Portfolio Overview page to see your last twelve months of data plotted visually. We’ll soon roll out this same chart at the property level. Send us your candid feedback by replying to this email or via the Support link once logged in.

The Stessa Weekly Newsletter is hand-curated every week to bring you insightful accounts of new features, investing tips, business insights, and market trends from the real estate ecosystem.