Housing Prices are still dropping in many cities, job growth hovers near zero, and the threat of a double dip recession seem to hinge on markets a half a world away, yet things seem rosy with apartment community investors. Most investors agree, multifamily investments are hot now, why is that, and how long will the good times last?
Driving the popularity of this class of investments is a few things:
1. It’s very difficult to qualify for a mortgage to buy a home, so many people who were able to own a home 4 or 5 years ago find themselves forced to rent.
2. With the economy at least stabilizing, many young workers who were forced to move back home with parents or double up with roommates are moving back out on their own.
3. During the great recession, development of new apartment communities stopped, resulting in little if any new product coming to market over the last two years. In 2011, REIS is forecasting a post-World War II low of just 33,000 new apartment deliveries.
4. The huge “echo boom” generation is reaching the prime age group for renters (mid 20’s to mid 30’s). This is increasing demand at a time supply is low.
All of the above factors are combining to create the most compelling argument for multifamily investments since 2006. REIS reports that vacancy rates have dropped from a high of 8% in 2009 to a projected 5.5% by the end of 2011. Meanwhile rents are projected to rise about 4.4% this year, and 5% in 2012, well above the 3.2% average for the last 30 years.
The question is, how long will these good times last for apartment owners? As expected the same compelling fundamentals that have driven down occupancy and raised rental rates has spurred new development. New apartment deliveries are expected to rise to 75,000 units in 2012, and 125,000 in 2013. This amount, though, is still below the 30 year average of 143,000 per year, so many feel that the fundamentals will remain strong for the foreseeable future.