2024 Multifamily Housing Outlook

The multifamily housing market is poised for a year of moderate growth and stabilizing trends as we step into 2024. Amidst the backdrop of moderating economic conditions, the year is expected to bring about promising changes, primarily driven by anticipated rate cuts and a resurgence in transaction volume. This article explores the multifamily housing landscape for 2024, delving into the significant market trends, outlook, and the potential impact of rate cuts on the industry.

Overview of the Multifamily Housing Market

The multifamily housing market has experienced a whirlwind of changes over the past few years. From the roller-coaster ride of demand and supply swings to shifts in renters’ preferences and the locations they choose to call home, the market has been through a period of significant evolution. As we step into 2024, the industry is poised for new developments, guided by the lessons learned from the past and the anticipation of a more stable future.

Economic Conditions and Impact on the Multifamily Market

As we head into 2024, the economic conditions seem to be moderating, paving the way for a potential soft landing. This moderation is likely to have a tangible impact on various economic indicators such as job growth, wage growth, and gross domestic product (GDP) growth. These indicators are expected to slow down yet remain positive, contributing to a stable economic environment supportive of the multifamily market.

The multifamily market, in particular, is expected to work through a period of sluggishness, primarily due to the anticipated peak deliveries of new supply for this cycle in 2024. Rent growth, while expected to be positive, is likely to stay below the long-term average, and vacancy rates are predicted to be higher than average.

However, the anticipated stability in interest rates could act as a stabilizing force for cap rates and property values. This stability could bridge the gap between buyers and sellers’ expectations, facilitating more transaction volume.

Multifamily Performance and Forecast

Assuming an economic soft landing, the multifamily market is expected to witness slow growth while absorbing the high level of new supply in 2024. As the overall economy slows down, leading to a softer labor market, the demand for multifamily housing is expected to remain positive but weaker compared with pre-pandemic rates.

The baseline forecast for 2024 predicts a rent growth of 2.5% for the year, slightly below the long-term annual average from 2000 to 2022. This forecast also expects the vacancy rate to remain relatively stable in 2024, despite it potentially being the peak year for deliveries this cycle.

Impact of Rate Cuts on the Multifamily Market

One of the most significant developments anticipated in 2024 is the potential for rate cuts. This section explores the potential impact of these rate cuts on the multifamily market.

Rate Cuts and the Multifamily Valuation and Debt Market

The multifamily valuation and debt market faced sluggishness in 2023, primarily due to the increasing and volatile interest rate environment. The high inflation rates and the continuous battle of the Federal Reserve to manage these rates led to a year of rate instability. As a result, multifamily originations were down throughout the year as many investors waited on the sideline throughout the rate instability.

However, the forecast for 2024 brings a glimmer of hope. The stabilization of interest rates should help buyers and sellers find the middle ground to get transactions done. But the slower rent growth and the higher rate environment may continue to suppress multifamily valuations in 2024. These factors could inhibit a quick snap back to 2021-2022 origination levels.

Despite these challenges, the overall outlook remains positive. Freddie Mac projects origination volume to increase roughly 30-33%, up to $370 billion to $380 billion in 2024, which would align it more with pre-pandemic levels.

Rate Cuts and Multifamily Investment

Rate cuts could also act as a catalyst for multifamily investment. Multifamily investors may have something to look forward to in 2024, according to recent signals from FHFA, the Federal Reserve, and Freddie Mac. After a sluggish 2023, market experts anticipate increased transaction volume due to stabilizing interest rates, among other factors.

As activity picks up, new policies enacted over the past year will apply to multifamily transactions. These include changes in lending caps by the Federal Housing Finance Agency (FHFA) and new radon regulations.

New Regulations and Policies Impacting the Multifamily Market

As we move into 2024, multifamily investors need to be aware of new regulations and policies affecting the industry.

FHFA Reduces CAPs, Excludes Workforce Housing

In 2024, the Federal Housing Finance Agency (FHFA) announced that the multifamily lending caps for Fannie Mae and Freddie Mac would be reduced to $70 billion each, totaling to $140 billion during the calendar year. As in 2023, FHFA stipulates that a minimum of 50% of multifamily business conducted by Enterprise lenders must align with “mission-driven affordable housing,” ensuring a strong focus on affordable housing and underserved markets. This year, loans supporting workforce housing properties will be exempt from the volume caps.

New Radon Regulations

New radon testing standards for Fannie Mae and Freddie Mac multifamily loans took effect in June 2023. These changes include requiring radon testing at multifamily Enterprise-backed properties, increasing required testing from 10% of ground floor units to 25% of ground floor units, and providing additional guidance for lenders and environmental consultants on the Enterprises’ radon standards.

New Data Collection Requirements

As the beta phase of the Fannie Mae expanded data collection requirements for Property Condition Assessments (PCA), and Seismic Risk Assessments (SRA) winds down, new requirements are expected to be announced soon. This could include the addition of 30+ data points to be collected with the PCA and three with the SRA to capture property characteristics related primarily to climate resilience.

Key Predictions for the Multifamily Market in 2024

As we look ahead, here are seven key predictions that we expect will shape the multifamily rental sector in 2024.

  1. 2024 will bring the most new apartments in decades. Construction data from the Census Bureau suggests that multifamily supply growth should remain strong through 2024. The number of new multifamily apartment units under construction hit one million for the first time ever in 2023, and completions are expected to peak in 2024.

  2. Expect low single-digit rent growth in 2024. Even in the most bullish scenario, it’s unlikely that demand will be strong enough to outstrip all of the new supply that we know is coming, likely resulting in our vacancy index rising modestly from its current level in 2024.

  3. The changing rent vs. buy math will create more long-term renters. The combination of record-high prices and spiking mortgage rates has caused existing home sales to grind to a standstill, making renting a more practical housing option for many.

  4. Hybrid work will cement itself as the new norm for office jobs. With many homes continuing to serve double duty as workplaces, renters will have an increasing demand for spare bedrooms and shared workspaces within multifamily communities.

  5. Sun Belt markets will see more renters, but not necessarily higher rents. Fast-growing Sun Belt markets will continue to be renter magnets, but rent growth should be kept in check thanks to lots of multifamily development.

  6. Presidential candidates will need to speak to housing concerns. As we head into a presidential election year, candidates on both sides of the aisle will need to articulate housing plans and speak to what has become one of the most pressing concerns of the American electorate.

  7. More renters will use AI in their searches. 2024 could witness a surge in AI-powered tools specifically for renters. It will soon become commonplace for renters to use AI in their apartment searches to search, compare, and coordinate actions.

The multifamily housing market in 2024 is expected to witness a year of moderate growth, stabilizing trends, and transformative changes. While challenges persist, the anticipated rate cuts, resurgence in transaction volumes, and evolving economic conditions present a promising picture for the industry. As we step into 2024, multifamily investors, renters, and stakeholders must brace themselves for a year of evolution, growth, and new opportunities in the multifamily housing market.

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