By: Nathan Metheny, Managing Principal/Co-Founder
Summary: Overall Outlook
According to the vast majority of research, the 2019 market outlook in regard to the multi-family housing sector is strong. With the combination of several factors, it is clear that the housing demand will surely continue to increase with no signs of slowing. Although a recession is always on the mind of investors, with the major factor of the increasing lifestyle choice to rent rather than own within the post-millennial generation, the multi-family sector indicates strength to weather a storm.
Factor #1: Strength of National Economy
The 2019 Multifamily Investment Forecast by Marcus & Millichap notes that job creation during the year of 2018 drove the unemployment rate of adults between the ages of 20 and 34 down to a 48-year low of 4.5%. Additionally, two-thirds of the subject group choose to rent. (1)
This, along with a strong economy and job market, will continue to support and increase the multi-family housing demand.
Factor #2: Cost of Owning vs. Renting
A recent study by Freddie Mac cites high housing costs as a main factor keeping young adults from purchasing a home, making renting a relatively more affordable option despite increasing rents. (2)
High wage earnings are the fastest growing segment of renters, providing evidence that unaffordable housing is affecting the majority of the population. Multifamily Executive explains that between 2007 and 2017 over 1.35 million high-income households became renters, an increase of 175% over this 10-year period.
Renting as a lifestyle choice among all age cohorts is also sustaining demand. According to the most recent “Renter Profile Survey” from Freddie Mac, 63 percent of renters are satisfied with their rental experience and 58 percent feel this is a good choice for them right now. The number of renters who expressed having no interest in owning a home has increased gradually during the past three years. Add to that the post-Millennial generation, sometimes referred to as “Gen Z,” the oldest of whom will be graduating college and entering the workforce within the next few years, and you have a formula for continued steady growth in the apartment industry.
Factor #3: Rent Growth
In a recent analysis performed by NAAHQ, the following was concluded: Annual rent growth increased to 2.6 percent during the third quarter from 2.4 percent the prior year, according to CBRE Research; and most markets are absorbing new supply with relative ease. In fact, CB reported that third quarter absorption was at its highest level since the late 1990s. (3)
According to the CoStar, RealPage, and Yardi, the average forecasted rent growth for 2019 is 2.67% while the average forecasted rent growth for 2020 is 1.97%. The secondary and tertiary markets will likely experience growth above those averages.
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About the Author: Nathan Metheny is Co-Founder and Managing Principal at Wealthrise. In this capacity, his primary roles include acquisition supervision as well as setting the long-term strategy and trajectory for the company.