According to Freddie Mac’s recent report, the multifamily market has been showing signs of things moving towards better times. As a matter of fact, many economists credit the conditions of the multifamily market with leading the way in terms of recovery in a broader scope macro economy.
Employment levels are still yet below their prior peak, however, the market on apartment fundamentals is still very strong. Occupancy rates have been above average for the past few years and rent growth has been expansive. Adding to this, though, equity capital for multifamily options has been prioritized above the other sectors, which has given way to fairly strong property valuations. Lastly, supply started to pick up in large ways in mid-2013, and has peaked this year- particularly in those gateway markets.
Because the job market has also been steadily improving, confidence has also been a little bit better, and the seasonally adjusted unemployment rate as of the end of last year was at about 120 basis points lower than the previous year. Freddie Mac mentioned in the report that they project by the end of this year, unemployment will hit around 6.4%, which is actually a little higher than the 5-6% area that goes alongside stronger economic conditions. According to the report, this is another driving factor in higher demand for multifamily properties. Because they also anticipate that overall employment will continue to move forward, the apartment rental sector should also follow suit.
You might also remember that in 2013, long term interest rates went up- there was worry that summer of an end to the government support of certain financial markets. Additionally, the 10 year Treasury rate showed a full percentage point of increase, and Freddie Mac seems to be in agreement with other observers who expect that the interest rates are going to continue to go up in 2014, but then tapering off towards the end of the year. They also stated in the report that the conditions that are boosting multifamily markets do appear favorable as the labor market continues to show signs of growth and interest rates trend upwards.