What Does the U.S. Multifamily Market Hold For 2024?

What Does the U.S. Multifamily Market Hold For 2024?

Feb 27, 2024

The U.S. multifamily market has been one of the most resilient and attractive sectors in the commercial real estate industry for the past decade, but it is facing some headwinds as we enter 2024. Despite a weak fourth quarter, the market saw a record-high rebound in demand in 2023. What will occupancy rates, rent growth, and the homebuyer environment look like moving forward? NexGen Title Agency is a commercial title insurance agency that examines the latest statistics to reveal this year’s projections.    

The supply and demand imbalance continues to rise.

Demand will steadily creep upwards in 2024, continuing 2023’s growth trend, but construction should start to slow. Last year’s impressive 565,000 completions may mark the peak of a 40-year high, the highest the market has seen since the mid-1980s. Although it is expected to drop this year by 25%, it will remain elevated above pre-COVID benchmarks.

With job growth likely to slow in 2024, year-over-year absorption is projected to rise. This means that the supply of new units will  outpace the demand for the tenth consecutive quarter. The supply-demand imbalance will put downward pressure on rent growth and upward pressure on vacancy rates, especially in markets facing extremely high levels of new supply.

2024: The year of stabilization?

While 2023’s vacant increase was 100 base points higher than 2022 at 7.5%, the 20% increase over the last quarter is one of the slowest in almost two years. This is a promising sign of stabilization.

But that’s not the only sign. 2023 also showed an uptick in demand for 3-star units at 62,000 units absorbed in Q4, polarizing 2022’s negative absorption for mid-priced units, as high rents and soaring inflation suppressed potential household creations in 2022. This recent development in 3-star absorption suggests mid-priced, institutional-quality assets can rise in 2024 and mark the beginning of a rebound.

The capital markets will also be more favorable for multifamily investors in 2024 as interest rates decline and liquidity increases. The 10-year Treasury yield is expected to drop from 3.5% at the  end of 2023 to 3.0% at the end of 2024. This will lower the borrowing costs and improve the debt service coverage ratios for multifamily loans.

The National Association of Realtors advocated for a recent change made by the FHA that increased the threshold dollar amount for “Large Multifamily Loans” from $75 million to $120 million. This change will increase the number of multifamily loans eligible for standard underwriting for FHA insurance, facilitating the creation of more rental housing cost-effectively.

Moreover, the availability of debt and equity will improve as lenders and investors remain confident in the long-term fundamentals and prospects of the multifamily sector. However, obtaining capital for new development will be more challenging, as lenders and investors will be more selective and cautious in underwriting new projects.

Which mid-Atlantic regions came out on top and which didn’t in 2023?

The multifamily market in the Mid-Atlantic region displayed contrasting narratives in 2023, attributing its continued strength to factors such as job growth and a demand-driven market. While each area experienced growth, the level of advancement varied across different markets.

Richmond and Hampton Roads emerged as the clear front-runners with the strongest five-year average rent growth at 5.8% and 5.7%, respectively. Elevated demand from strong employment growth and the desire to live in smaller, more affordable cities likely facilitated this escalation, especially as people migrated from denser urban areas post-pandemic.

Conversely, the markets that lagged behind still demonstrated growth, albeit at a slower pace. Baltimore and Washington D.C. had lower rent increase rates, averaging 4.1% and 2.6% over the past five years. Yet, they possessed other strengths, such as high occupancy rates and large transaction volumes, indicating a resilient market despite the slower rate of rent appreciation.

View the full NEWMARK Mid-Atlantic Multifamily Market Report for more insights and detailed  analyses.

Watch the video: State of the U.S. Multifamily Market: 2023 Recap & 2024 Outlook

After 2023’s record-high supply and dwindling rent growth, will market conditions this year offer much-needed relief?

In just seven minutes, you’ll learn:

  • What the rent growth forecasts look like for key markets
  • Which types of properties are poised for success
  • How the supply pipeline will affect each region
  • And more!

Watch the video from Apartmentlogy here.

Need more multifamily insights? NexGen Title Agency is your trusted partner for commercial real estate transactions. Whether buying, selling, or refinancing a property, NexGen  Title  Agency can help you protect your investment and ensure a smooth and efficient closing. . Contact us today to see how we use advanced technology and responsive service to deliver excellence and satisfaction to every client.

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