Freddie Mac headquarters
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McLEAN, VA—Strong multifamily growth along with low interest rates put originations on pace to grow by 8% over 2018, according to the Freddie Mac Multifamily 2019 Midyear Outlook.
As of June, multifamily completions outpaced the prior two years, says Steve Guggenmos, who leads Freddie Mac Multifamily’s research and modeling team. “These strong fundamentals and lower-than-anticipated interest rates have supported growth in multifamily originations, which are forecasted to grow to $336 billion in 2019.”
Actual volume for 2018 will not be available until the fall of 2019, according to the GSE but its expectations are for total origination volume to rise by 9.1% to $311 billion for the year. As for 2019, with interest rates declining through the first half of the year and projected to remain low for the remainder of the year, Freddie Mac anticipates strong volume growth through 2019.
This year’s robust rental market and strong multifamily volume growth are driving the activity. Performance in the multifamily market ended 2018 much stronger than anticipated and has remained relatively healthy through the first half of 2019 despite a slower first quarter. Fundamentals are expected to remain strong throughout the rest of the year, but vacancy rates could continue their slow rise as more supply enters the market, Freddie Mac reports. Rent growth is expected to grow around 4% for the full year.
That said, the rental market remains well positioned to absorb new supply due to vacancy rates continuing to beat out projections and rent growth remaining above the rate of inflation, according to the report.
Another factor is that Freddie Mac expects to continue to see an overall shortage in housing as demand outpaces supply, despite multifamily construction churning at elevated levels. The US Census Bureau reports five-plus unit multifamily completions are on pace in 2019 to exceed the previous few years; up to 365,000 units annualized as of June, compared with 345,000 units seen in each of the prior two years. As the 2019 leasing season picks up, the multifamily market remains in a good position to absorb most of the new supply, the GSE said.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
