Some Counterintuitive Predictions for Multifamily Properties

CRE Finance World, Winter 2013

Some Counterintuitive Predictions for Multifamily Properties Head of Economics Senior Analyst for Analyst for EconomicsMichael SteinbergBrad DoremusVictor Calanog & Research Economics & Research & Research Reis, Inc. Reis, Inc. Reis, Inc. L months. We offer a more nuanced look at why certain New Home Sales and Housing StartsFigure 1ike a snowball rolling down a mountain, certain topicstend to accumulate size and speed the longer they arebandied about. In this article, we examine several recenttopics in multifamily that have gained traction in recent trends, however prevalent they may currently be, do not always point toward a single predictable result. First, we explain why a housing market on the upswing is not a signal for an apartment market that is past its peak. Additionally, we will explain why the upcoming surge in new apartment supply does not spell the end of the sector’s robust performance over the last few years. Gauging The Effects of a Housing Market Upswing Home prices and sales have recently passed what many believe to be their cyclical trough, coinciding with a slowdown in demand for apartments that was visible in third quarter data. The timing of both these occurrences suggests that perhaps an upturn in the housing market may be contributing to slowing improvements in multifamily fundamentals. Could further improvements in the housing market dent the current upswing in the apartment market? Housing market data releases have been uniformly positive in Source: US Census Bureau recent months. Home prices, as represented by the S&P/Case While the single-family housing market finally appears to be on Shiller Composite 20 Index, rose 0.9% from July to August. More the mend, this does not automatically mean less demand for importantly, year-over-year price growth turned positive during multifamily. Jay Lybik, vice president for market research at Equity the summer. Residential, a Chicago-based REIT, tracks move-outs very closely every quarter and has witnessed little to no change in the number Total housing starts stood at a seasonally adjusted annual rate of residents leaving to buy a home. of 872,000 in September, up 34.8% year-over-year with the single-family portion rising 42.9%. New home sales were at a Data from the National Association of Realtors also shows first-time seasonally adjusted annual rate of 389,000 in September, a 5.7% home-buyers percentage of sales flat after spiking due to the Home increase from August and a 27.1% increase from one year ago. Buyer Tax Credit, which expired in 2010. Single-family homes Additionally, existing home sales in August totaled 4.75 million that are being purchased by investors for rent cater to different units at a seasonally adjusted annual rate, which is 1.7% lower household types than investment-grade multifamily properties. than in August but 11.0% higher than in September 2012. Single-family rentals see households with children as their largest household type compared to investment-grade multifamily properties in which singles dominate, especially in urban locations. CRE Finance World Winter 2013 42


CRE Finance World, Winter 2013
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