Several factors are driving the growth of multi-family developments, lending and profits…low mortgage interest rates, a continuing demand for rental housing due to the nation’s housing shortage and a continuing strong labor market, so says Freddie Mac’s midyear outlook for the multi-family segment of the housing market.
Multi-family rendered a solid performance in Q2 2019 despite a slow start to its year. Freddie Mac indicated, “Fundamentals are expected to remain strong throughout the rest of the year.” Freddie also predicted that vacancy rates would slowly climb to approximately 4% during the remainder of this year.
Multi-family construction is “churning at elevated levels,” according to Freddie, with the building of 5+ unit developments to be on pace to exceed such 5+ unit developments during the last several years. Meanwhile, single-family housing supplies continue to lag.
All of this translates into smiles regarding multi-family lending. “Multi-family originations are expected to set another record year in 2019 due to strong fundamentals, continued demand for multi-family investments and low interest rates.” Freddie Mac continued by saying, “Our expectations are for a total origination volume in 2019 to rise by (a whopping) +9.1% to $311B.”
The head of Freddie Mac’s multi-family research and modeling team, Steve Guggenmos, said, “A strong labor market and a persistent housing shortage have continued to fuel a robust rental market. As of June 2019, multi-family completions outpaced such completions the prior two years while demand remains high in the majority of markets allowing them to absorb most of the new supply.”
Meanwhile, Fannie Mae came up with some predictions of its own regarding existing home sales that may further boost the multi-family segment:
- For the first time, Fannie Mae projected a decline of -0.1% in single-family home sales despite mortgages being a near 3-year lows.
- GDP growth to 2.2% for 2019.
- Average unemployment rate at 3.7% for 2019 and 4% in 2020.
- A 2% rise in core Consumer Price Index (CPI minus food and energy costs, the Federal Reserve’s preferred inflation gauge), down from 2.1% last month.