MultifamilyWinners in 2019
W ill the number of new single and multifamily units affect rents? While household formation is on the rise, buy & hold real estate investors need to be aware of rising inventory levels. Fannie Mae’s 2019 Multifamily Market Outlook shows the number of new units coming online this year will peak at 453,000, which is higher than the previous two years. Fannie Mae’s director of economics, Kim Betancourt, says that Millenni- als are flooding the rental market, pushing up demand for apartments. We’ve heard that a growing number of Millennials are now buying homes, but many more are still renting. In fact, the Millennial homeownership rate is run- ning about 8% lower than Gen Xers and Baby Boomers for the same age range. That means Millennials will continue to need rentals, and plenty of them. While we’ve seen strong job growth recently, it’s expected to slow down. Betancourt’s team expects job growth to be 1% in 2019. Based on that figure, the demand for mul- tifamily units should be between 250,000 and 370,000. Betancourt says that most of the new units are going to just 10 to 12 major metros, and some of those cities will fall short on jobs.
.9% job growth rate, the city will only need 21,000 new units. That’s leaves a surplus of about 17,000 units. Boston is also expected to have an oversupply this year. Fannie says 14,000 units will come online this year. With an expected job growth rate of 1.1%, the city will only need about 9,500 units. METROSWITH STRONG JOB GROWTH At the top of Fannie’s list for higher-than-expected job growth are several Florida metros. Orlan- do is number one on the list for job growth at more than 3%. Las Vegas, Austin, and Phoenix are next. Jacksonville, Florida will see close to 2.5% job growth. Houston is also strong, along with Dallas. Tampa comes in at more than 2%. New housing in these metros is not keep- ing up with job growth. Las Vegas is a good example of “undersupply.” It has an expected job growth rate of 3.1% this year. That will create the need for at least 6,500 new units, but only about 2,200 are in the pipeline.
ing slower rent growth along with higher vacancies because they are getting overbuilt. But on average. Betancourt is expecting another year of positive rent growth for 2019 – between 2 and 2.5%. Betancourt says: “The vacancy rate is expected to return to more historical levels and then remain fairly stable further out into the forecast, due to ongoing favorable future job growth and demographic projections.” She says the historical average is about 6%. Her team is expecting it to get close to that mark by the end of the year. As for cap rates, Betancourt says they’ve been in the mid- to low-5% range for two years now. She says: “It seems unlikely that cap rates will compress any further. But that doesn’t mean they will skyrocket either.” She expects them to rise slightly but remain below 6%. In summary, it’s been a hot rental market. Rents may stabilize as more units come on line, but demand should continue to remain strong. • INVESTOR INTEREST IN MULTI-FAMILIES
METROS THAT COULD BE OVERBUILT
New York is among the metros that could be over built. The Big Apple is getting the most new mul- tifamily units this year, even though their job growth rate is expected to be less than the national forecast. The report shows that 38,000 units will come online this year but with a
UNEVEN NATIONAL DEMAND Some metros are already see-
INVESTOR REVIEW :: 11
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