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Midyear Multifamily Market Outlook

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As the Federal Reserve has increased interest rates and inflation has risen, the likelihood of a recession in the near future has grown. The sharp rise in interest rates has already impacted volume as borrowers and investors may have sidelined deals until volatility levels out. Despite the increased uncertainty, multifamily performance is expected to remain strong for the year. Multifamily fundamentals have begun to moderate in the second quarter – a trend which is expected to continue throughout the rest of the year – with growth projections still well above long-term averages: Gross income is projected to increase by 6.8% and the vacancy rate to remain unchanged at 4.8%. Rental growth has been exceptionally strong, up 16% over the year ending in June. Occupancy has remained above the long-term average. Tight rental markets indicate that the number of construction permits issued and the number of housing starts will have a limited impact on the market this year. Due to the volatility of Treasury rates, we expect total originations for the multifamily sector to contract slightly in 2022 to $440-$450 billion, but underlying multifamily fundamentals will continue to attract investors. Texas Multifamily Outlook – July 2022 According to most objective metrics and standards, multifamily assets in major Texas markets still represent strong investment propositions relative to other commercial sectors and the stock market. Houston After losing thousands of jobs to the flu pandemic, Houston recovered all of them by 2022, with multifamily construction directly benefiting from the bounce in economic growth. Rents rose 0.7% in April from three months earlier, to $1,293, while the occupancy rate for stabilized apartments in the 12 months ending in April was 94.1%. Average Rent: $1,293 (0.7%) Unemployment Rate (%) : 4.1% Average Occupancy Rate (%): 94.1% New Apartment Units Under Construction: 23,382 Dallas-Fort Worth In Dallas-Fort Worth, the pace of growth in apartment rents continued in the first half of 2022, driven by in-migration and company expansions and relocations. The average rent rose 1.2% on a trailing three-month basis through May, to $1,525. The occupancy rate was up 90 basis points in the 12 months ending in April. Average Rent: $1,525 (1.2%) Unemployment Rate (%) : 3.2% Average Occupancy Rate (%): 96.2% New Apartment Units Under Construction: 47,011 Austin The growth of the Austin metro area has been spurred by its reputation as an eclectic, creative community. The population grew by 28% in the last decade and housing demand is on the rise, which has led to a trend of rising rents. Although the rates softened during seasonally slow periods, rents have since picked up again and reached $1,744 on a trailing three-month basis through May. Occupancy rates are at 95.7%. Average Rent: $1,744 (0.8%) Unemployment Rate (%) : 2.5% Average Occupancy Rate (%): 96.2% New Apartment Units Under Construction: 42,118 According to research from the National Multifamily Housing Council (NMHC) and National Apartment Association, roughly 4.3 million new apartments will be necessary by 2035 to meet increasing demand. Texas, Florida, and California account for 40% of future demand and will collectively require 1.5 million apartments by 2035. Join Us For A Daily 60-second Coffee Break Series For Passive Investing In Commercial Real Estate With James Kandasamy, The Best-selling Real Estate Author And Mentor.

Multifamily Real Estate As A Hedge Against Inflation

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Inflation is a serious concern for investors. When inflation is up, interest rates tend to be up as well. That’s because the Federal Reserve will raise interest rates if inflation increases to keep it in check. When interest rates are high, it makes sense for investors to look at other ways to make money. One way is through multifamily real estate. Multifamily real estate is a good hedge against inflation because it’s an asset that can increase in value and provide income. As inflation increases, the value of your property will increase. In addition to selling it at a higher price, you also have the option to rent it out and make money from your investment. When you buy a multifamily property, you’re purchasing more than just a house. You’re buying an asset that can be rented out and generate income for you. This means that if inflation increases, your property could also increase in value. This is one of the most important reasons why investing in real estate is one of the best ways to protect yourself against inflation. High Inflation And The Stock Market When inflation rises rapidly, it becomes difficult for investors to make money on the stock market because stocks are considered long-term investments and tend to increase more slowly than inflation over time. For example, if inflation were 10 percent per year, stocks would have to go up 11 percent just for the investor to break even after taxes and fees were removed from their returns. Multifamily Real Estate As A Hedge Against Inflation Inflation is a severe concern for real estate investors. Inflation can erode the value of investments in real estate and other assets, making it harder to generate income. However, there are several ways that investors can hedge against inflation to protect their portfolios. One way to hedge against inflation is through multifamily real estate investments because this asset class has historically withstood the economic pressures of rising prices. This makes sense when you consider that the cost of living also increases over time. As rents rise, so does the demand for more affordable housing options such as apartments and condominiums. Multifamily real estate is an asset class that can hedge against inflation in a few different ways: It can provide a relatively stable cash flow over time. It can act as an inflation hedge because it increases in value over time. The property’s value is based on its income stream, which increases as rents increase due to rising rents and inflation. For example, if you own a building that brings in $2 million per year in rental income and your annual mortgage payment is $1 million per year, your net cash flow (income minus expenses) will be $1 million per year (assuming no vacancies). This means that if you are paying 6% interest on your mortgage loan, the value of the building is $20 million ($1 million / 6% = $20 million). If the building appreciates by 3% per year (which would happen if rents were increasing), then after five years, it would be worth $22 million ($22 million – $20 million = $2 million). While you still pay off your mortgage loan at 6%, your net worth has increased by 3%. Another way to hedge against inflation is by ensuring that your properties are well-maintained and managed effectively. If you own an apartment building with tenants who are happy with their living situation, they’ll be less likely to move out or complain about problems with their apartments. This means your property will remain more valuable than others in its area and allow for future appreciation in its value over time. Final Thought Overall, multifamily real estate is an excellent investment to hedge against inflation when prices rise. Of course, it’s still important to research before you dive in and buy property, but once you’ve chosen the right location and established a sound financial plan, you can start building wealth with prudent and practical means. Join Us For A Daily 60-second Coffee Break Series For Passive Investing In Commercial Real Estate With James Kandasamy, The Best-selling Real Estate Author And Mentor.