Multifamily Sales On Pace of Reaching Record High for the Year

Annual U.S. multifamily property sales are approaching a record in the face of a flood of new apartment construction and increasing home ownership.

Market doomsayers may be confounded by how the new units are being quickly absorbed by renter,s but demand remains unabated across the sector.

"The multifamily market continues to surprise market watcher. Expectations that supply would overwhelm demand, expectations that price growth would trail off, both appear to be contrary to what we’re seeing today."

While data from the second quarter confirms that rent growth has slowed in many markets and vacancy has inched up in places, apartment vacancy for the U.S. market as a whole actually declined 50 basis points in the second quarter, to just under 6 percent.

In addition, average apartment rents rose 3 percent compared to the second quarter of 2017, an increase in the year-over-year rate compared with the first quarter.

And the average apartment in the U.S. now rents for $1,298 per month. That's another increase from the first quarter, but still well below this cycle’s peak of late 2015, when the average U.S. rent edged toward $1,400 per month.

Taking stock of the second-quarter performance, analysts tied the apartment sector’s success to a favorable overall economic picture nationally: job growth is high and new households are forming quickly, both of which are driving demand for apartments.

But the multifamily market also benefits from some of the bad news in the economy. Increasing mortgage rates are keeping many renters from making the jump to home ownership, while a slowdown in single-family home construction has made it even more difficult for first-time home buyers, even as homeownership rates edged up slightly.

"This cycle, nearly every marginal household has been a renter household, bringing the home ownership rate down from 69 percent to 63 percent. More recently, however, more and more new households have been buyers, and the home ownership rate has begun to rise, albeit slowly. Over the last two quarters, the home ownership rate has risen by just .1 percent, a slower pace than the last two years, and frankly, more slowly than we expected.

"So why aren’t more people buying homes? Rising interest rates and aggressive pricing certainly matter. But are there actually any homes to buy?" he added.

On the capital markets side, investors have shown strong interest in the apartment sector. Many large institutional investors, including those outside the U.S., consider U.S. apartment markets to be a good, long-term investment, and have amassed billions to invest in properties.

Affleck also predicted the year-end total for apartment sales this year will match or exceed last year’s total of just under $180 billion in trades.
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