HIKING FEDERAL INTEREST RATES AND WHAT THIS MEANS IN MULTIFAMILY
The Federal Open Market Committee and all other US agencies have finally laid down their predictions of this year's inflation rates. US Macro Strategist Juhi Dhawan expects the economy to adjust to higher interest rates, and labor markets feel the pain of restrictive Fed policy. With the economic tide shifting towards a slowdown, it is possible that rates would continue to increase from current rate of ~4.75%.
What does this mean to the Multifamily Market?
Despite the forecasts of a mild recession in Q2 of 2023, the demand for multifamily rentals still persists. Freddie Mac Multifamily (2022) expects the multifamily sector to come out strong as outlook projects a 3.9% rent growth and vacancy rate to rise modestly to 5.1%. for 2023.
Furthermore, interest rates have made home-buying less appealing as prices exceed budget and income. The increasing affordability gap with low housing availability, strong immigration and rising demographic demand (millennials/Gen Z), may cause the home buying market (millennials) to spill over into the rental market. Nationwide, the median rental is projected to increase 6.3% in price, even as an influx of new multifamily housing helps to better meet rental demand.
“We think that one of the biggest risks to the multifamily market’s performance in 2023 is the state of the labor market throughout next year.” reports say.
Agreeably, diverse job markets, strong population growth, and favorable locations makes this market well worth exploring for apartment investors. According to Ali Wolf, Zonda’s chief economist, Houston remains to be one of the most watched rental markets this year as long-term high-income job growth reaches 39.1% and the number of projects offering homes under $300,000 remain abundant. Dallas, on the other hand, has been the #1 multifamily development market since 2016 and continues to be a hot market in 2023.
Investing in a multifamily project has many advantages as, on balance, real estate offers lower economic and inflationary risks than stocks.
Of course, the decision to invest in real estate or invest in stocks or bonds or other asset classes, which offer different risks and opportunities, is a choice which depends on an investor's risk tolerance, objectives, financial status and investment style.
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Anna & Peter Tan
SuiteLifeMF has acquired, operated and invested in real estate for over 10+ years, investing in over 1500 doors and with over US$ 100 under management (900+ doors). The company also operates a property management company which handles a portfolio of single family homes. SuiteLifeMF maintains a disciplined approach to investing, which focuses on capital preservation and strong returns with a deep understanding of submarkets, economic and political situations.