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Supply is one of the themes in Fannie Mae's Outlook for 2019, which is being released this morning. Namely, the GSE expects the multifamily market to remain positive but it warns that a wary eye must be kept on the amount of supply coming online.

This year Fannie Mae expects to see 453,000 apartment units come online, plus another 46,000 condo units, Kim Betancourt, head of multifamily research at Fannie Mae, tells GlobeSt.com. Last year 381,000 units delivered and in 2017 that number was 394,000.

“With that type of new supply there will be some markets that are winners and some that are losers,” Betancourt says.

Too Much Supply

For instance, Boston, Chicago and New York City will see more supply than demand this year, the GSE has determined.

“New York City is not as so dependent on job growth for producing multifamily demand but even so it will not have enough job growth to absorb all of the units coming online,” Betancourt says. Likewise for Boston and Chicago, both of which depend more on job growth for absorption.

Unfulfilled Demand

Markets that have a lot of demand and not enough supply include Las Vegas, Phoenix and Orlando. “Las Vegas was poster child for the housing crisis and as a result a lot of developers have not been active,” she says. There will be demand for about 6,500 units but only about 2,000 are coming online this year. The numbers vary somewhat but expect to see a similar story play out in Phoenix and Orlando, she says.

Positive Fundamentals, Orginations

Overall, fundamentals for multifamily will remain positive, Betancourt says. The vacancy rate is expected to increase for 2019, although not significantly, possibly climbing to as high as 6%. Cap rates are also expected to increase in part because of interest rates and in part because of the supply issue.

Fannie Mae expects to see nearly $300 billion in multifamily mortgage originations this year, which is in keeping with other estimates including from the Mortgage Bankers Association. There are a number of factors for this healthy liquidity, Betancourt says. “It is not only that interest rates are still at historic lows and that there are a lot of property loans with 3-5 year loan terms, but also all this new supply coming online will need permanent financing.”

“That should keeping things moving in the capital markets.”