Freddie Mac sees limited growth opportunities in the multifamily sector for 2024, as the industry deals with high supply.
The government-sponsored enterprise is forecasting rent growth of just 2.7 percent, according to its new midyear outlook. It also projects the vacancy rate to jump six percent, equating to a rental income boost of just 2.5 percent. For context, rental income growth is 20 basis points lower than the average on record from 2000 to 2022, according to RealPage. Freddie refers to its projections as “muted” growth.
While Freddie notes the economy is healthy overall, the high supply of new units, pegged at a 40-year-high, is not meeting the multifamily demand. A couple of other elements leading to volatility are high interest and cap rates.
Particularly, the majority of metro areas in 2023 witnessed a slower pace of rent growth. The places that experienced the biggest declines were actually the ones that thrived from high post-pandemic activity from 2021-2022.
The good news is the limited growth may not last forever, according to Sara Hoffmann, senior director of Multifamily Research at Freddie Mac.
“That will cause multifamily performance to remain subdued this year, but over the longer term, the multifamily market appears primed for growth due to an overall shortage of housing, an expensive for-sale housing market and favorable demographic tailwinds,” she said in a statement.
Also, it’s important to note that not every market is created equal. Freddie said that the trends will favor “secondary and tertiary markets.” This includes the Sun Belt and the southern plains thanks to their areas being more affordable options compared to larger nearby markets.
Freddie expects multifamily origination volume in 2024 to be roughly $320 billion, which would be an increase from the $264 billion projected for 2023. This assumes the market stabilizes.