One Multifamily Analyst Looks Forward to a Shift in Fundamentals
Also sentiment about multifamily debt has turned positive for the first time in 10 quarters.
After a lengthy slog, the multifamily debt outlook has turned positive for the first time in 10 quarters, according to a national apartment CEO survey by the National Multifamily Housing Council.
The index that measures such came in at 66, signaling that debt was “more available.”
Nearly half (45%) of respondents reported better debt financing conditions, up from 0% who said the same in October.
Conditions were “unchanged,” according to 35% of respondents and 14% said now was a worse time to borrow than three months ago.
However, the rest of the survey indicated that apartment conditions had weakened over the quarter. Market Tightness Index was at 23, Sales Volume at 34 and Equity Financing at 44. All are below the breakeven level (50).
“The 10-Year Treasury yield has dropped nearly a full percentage point since October, as core inflation continues to moderate and Fed officials signal likely rate cuts in 2024,” noted NMHC’s Senior Director of Research Chris Bruen.
“This has caused the availability of debt financing to increase for the first time in nine quarters. Yet, the apartment market continues to record decreasing rent growth and rising vacancy rates as it absorbs the highest level of new supply in more than 30 years.”
At least one analyst, though, is looking forward to a shift in fundamentals. “Apartment demand has rebounded meaningfully from a dreadful second half of 2022, though today, owners are very clearly prioritizing occupancy over rent,” Sam Tenenbaum, head of Multifamily Insights for Cushman & Wakefield said in a company research video.
With more than 800,000 units still under construction, or more than 5% of the nation’s inventory, supply-side dynamics will remain the key theme for the next few years, something that Cushman & Wakefield will be watching closely.
With construction starts down 60% over the past year, however, especially in hot spots across the Sun Belt, oversupply concerns are likely to be relatively short-lived, Tenenbaum said.
“The cost to purchase homes remains completely disconnected from the rental market, so new households forming will be dramatically more incentivized to rent over homeownership, which should help new product lease-up, even if it may take a couple of years for the market to rebalance,” he added.