Who are the Participants in the Multifamily Market?
Several different groups of people make up the multifamily market but in general the market consists of sellers, buyers, developers, and consumers.
- Developers – Developers in the multifamily market are responsible for planning and organizing the construction and completion of the multifamily units in the market. This includes but is not limited to duplexes (and variations thereupon), condominiums, and apartments.
- Sellers – Developers and sellers can be one in the same or separate entities. Typically, large developing companies sell their own developments to buyers or renters while smaller developers may be hired by sellers to complete multifamily projects at their behest. Sellers may also be the individuals who bought the completed multifamily complex from developers with the intent to sell or lease units individually.
- Buyers – Buyers can either refer to those who buy entire multifamily complexes, or individuals who purchase single units. This buyer can then lease the unit or units at their discretion.
- Consumers – Consumer can also be interchangeable with buyer in certain contexts. Either way, consumer refers to the person or person occupying the unit whether that be the person who purchased the unit or a lessee.
Many of these terms can be used interchangeably. For example, a developer can also be a seller and a consumer, just like a seller can be a former buyer and a current consumer. Some materials do not distinguish buyers from consumer, or developers from sellers. The usage and distinctions depend on both context and source material.
What Factors Influence the Multifamily Market?
Many factors influence the multifamily market just as with any market. Changes in the multifamily market affect everyone involved, from the developers to the consumers. Many decisions and actions carried out by the federal reserve have direct and indirect impacts on the multifamily market. For example: interest rates.
Interest rates heavily influence many markets as they significantly impact the costs and process of borrowing funds. This can have a negative or positive effect on developers, buyers, and renters as low interest rates make investing in multifamily projects easier for developers while encouraging rental over homeownership for consumers in the multifamily market. This is at least in part because lower interest rates have been shown to correlate with higher home prices. With interest rates being so volatile in recent years, monitoring interest rates set by the Federal Reserve is an important research practice used by companies, investors, and consumers to know what is happening and what may happen in the multifamily market.
Population changes also affect the multifamily market. As one might assume, typically as population increases, housing demand increases and therefore multifamily housing demand increases, although this varies based on location. Other population related factors such as migration patterns and demographic shifts impact the market as well. For example, if there are more job opportunities, more space, more affordable housing, or lower crime statistics in an area that may attract more people thereby increasing demand for multifamily housing.
Government policies represent another factor that impacts the multifamily market. Changes in polices such as implementing tax incentives for real estate development influence developer decisions affecting all participants in the market.
How has the Multifamily Market been Performing?
It is important to understand that the COVID-19 pandemic affected all parts of the global economy, and the multifamily market is no exception. The market saw a strong demand in 2022 in response to many factors, most related to the decline of the global pandemic and the gradual return to pre-pandemic norms. Although this demand was predicted by many to continue in the second half of 2022, that was not the case, and the multifamily market was hit hard by the decrease in multifamily rental demand. This demand continued to fall throughout the rest of 2022. Despite this, the market remained resilient and, first half of 2023 saw a close return to “normal” (pre-pandemic) levels for the multifamily market. Vacancy rates increased in the second half of 2022 and were still increasing in the beginning of 2023 but at a slower pace.
How has the Multifamily Market been Performing thus far in 2023?
Due to many factors both related to the COVID-19 pandemic and unrelated, the multifamily market has been volatile and difficult to predict. Demand doubled from 2020 to 2021 but fell sharply into the negatives near the end of 2022. Early 2023 saw the return of positive demand in the market. This resulted in positive growth in the rental market. This growth is minimal compared to pre-pandemic norms, and occupancy rates have been declining, slower than in 2022, but still declining. With the economy prevailing against the looming recession, things are looking up despite decreasing occupancy rates and lower than average rental growth.
What is the Outlook for the Multifamily Market in 2023?
Predictions show that the multifamily market is expected to continue its return to pre-pandemic norms. The market is still lower than the pre-pandemic norms but rent growth is still expected to end the year in the positives (around 3%) and the vacancy rate is expected to close out the year at about 5%, which is average for recent years. These numbers represent the national average and vary based on location. Some cities in the United States are seeing high multifamily housing supply to meet high demand whereas others are suffering from high supply and low demand.
Which United States Cities are seeing the Highest Demand for Multifamily Housing?
Demand for multifamily housing is high in some places and low in others. Many large United States cities that are experiencing high population growth and migration rates also sport a high demand for multifamily housing. Some cities that feature a high demand for multifamily housing include:
- Dallas, TX
- Miami, FL
- New York City, NY
- Raleigh, NC
- West Palm Beach, FL
- Austin, TX
What is the Forecast for the 2024 Multifamily Market?
The 2024 multifamily market forecast varies based on who is delivering the predictions. Some sources say it will continue to rise steadily before finally returning to pre-pandemic levels, while others predict it will plummet. With the variability of the market in recent years, from the boom it experienced in the first half of 2022 followed by the drastic fall in the final few months to the steady growth through 2023 thus far, it is hard to accurately predict the market’s behavior.
It is believed by many that house prices will continue to steadily rise throughout 2024. This includes both the prices of buying a home, and renting a home, multifamily or single family. However, falling in line with statistics from so far in 2023, it is predicted that 2024 will begin the process of restoring the stability to the housing market that was lost during the COVID-19 pandemic. Despite this, many sources assert that the housing shortage will continue in 2024, 2025 and at least into the latter half of the 2020s.
One can, with a high degree of certainty, say that there will always be demand for multifamily housing. As with all real estate, it all depends on location. In 2024, one is unlikely to see high demand for condominiums built in the middle of the uninhabited Nevada desert, but in a rapidly growing city such as Dallas or Austin demand is much more prevalent.
