Demand for Apartments in 2021 Smashes Previous Record High by 66%

Demand for market-rate apartments in 2021 soared far above the highest levels on record in the three decades RealPage has tracked the market. Net demand totaled more than 673,000 units – obliterating the previous high set in 2000 by a remarkable 66%. Demand would have been even stronger if not for record-low vacancy, severely limiting the number of units available to rent.

Strong demand drove up apartment occupancy 2.1 basis points year-over-year to 97.5%. Both the increase and the resulting rate were the highest on record since RealPage began tracking apartments in the early 1990s.

Household formation is likely occurring at a faster clip than official government data sources are reporting. It’s not just apartments. We’re seeing huge demand and ultra-low availability for all types of housing – including for-sale homes and single-family rentals – in essentially every city and at every price point.

The Sun Belt and Mountain/Desert regions combined to account for more than half of the nation’s apartment demand in 2021, led by Dallas/Fort Worth’s 7.4% share of the U.S. total.

Remarkably, occupancy rates hit or top 96% in 148 of the nation’s 150 largest metro areas. (For context, a rate of 95-96% is traditionally considered “full” when accounting for normal turnover time between leases.) The only exceptions are a pair of small Texas markets: Corpus Christi and Midland/Odessa.

Severely limited availability has led to price appreciation in all types of housing, including apartments. Effective asking rents on new leases increased a record-high 14.4% in 2021. However, there are signs that rent growth could soon moderate – though not dramatically. True new lease rent growth (the replacement rent a new renter pays compared to the previous renter of the same unit) peaked in August and has inched down since then. Asking rents, the traditional headline metric, tend to be a lagging indicator.

New lease rent growth in 2021 reached double-digits in 103 of the nation’s 150 largest metros. Florida and Desert region markets led the way, with appreciation topping 20% in 11 Florida markets: Naples, Sarasota, West Palm Beach, Fort Myers, Tampa, Fort Lauderdale, Port St. Lucie, Orlando, Jacksonville, Palm Bay, and Miami. Outside the Sunshine State, 11 more metros topped 20% – including Phoenix, Las Vegas, Austin, Raleigh/Durham, Atlanta, and Salt Lake City.

In one major positive sign, renter incomes continued to soar upward – keeping rent-to-income ratios in the low 20% for the average renter household signing a new lease. New renter incomes registered at $70,116 nationally, up 11% above the pre-pandemic high.

It’s tremendously encouraging to see that for the vast majority of market-rate renters, apartments remain affordable. With this big wave of new demand coming in, these renters are bringing big incomes and they are paying rent on time. We’ve seen this not only in our own data but in reporting from all the publicly traded rental housing REITs. However, averages and medians do not tell the full story. Not every household could afford market-rate rentals even prior to the pandemic, and as much as we need more housing of all types, our country remains in desperate need of more affordable housing.

One encouraging sign: Unlike in single-family, multifamily new supply continues to hit the market in large volumes – and even more is on the way. Nearly 360,000 market-rate apartment units completed in 2021. That’s the biggest addition in more than three decades. Another 682,000 units are under construction. Of those, roughly 426,000 are scheduled to complete in 2022 – marking the first time since 1987 supply will top the 400,000-unit mark.

The increase in supply is great news for renters unable to find available housing. We need more housing – all types of housing. But most of these new apartments are higher-rent, Class A+ communities. Affordable housing requires government support and funding in various forms, and there simply isn’t enough of that across most of the country right now.

Construction leaders remain the usual markets, led by Dallas/Fort Worth, Phoenix, and New York. On a relative basis (construction relative to the size of the market), metros seeing significant volumes of supply underway include Nashville, Austin, Salt Lake City, Phoenix, Charlotte, Raleigh/Durham, and Jacksonville – all high-demand areas.

“Multifamily starts have been robust over the last decade and stalled only briefly when the pandemic first hit before re-accelerating again,” said Carl Whitaker, RealPage’s Director of Research and Analysis. “Starts in 2022 will likely top 2021 levels, meaning completions should remain very high through at least 2023-2024. That’s especially true in many of the nation’s Sun Belt metros, most notably D/FW, Austin, Phoenix, and Nashville.”

---

Source: Demand for Apartments in 2021 Smashes Previous Record High by 66%

https://www.creconsult.net/market-trends/demand-for-apartments-in-2021-smashes-previous-record-high-by-66/

Prediction 2022 will be a good year for multifamily housing

 

In its U.S. Multifamily Outlook for Winter 2022, Yardi Matrix forecasts that the fundamentals of the multifamily housing business will remain strong in 2022 as the wider economy continues its recovery.

 

Yardi Matrix cited a forecast that called for economic growth of nearly 4 percent in 2022, down from 6 percent in 2021. This is somewhat higher growth than that called for in the recent forecast from Fannie Mae.

One risk to growth is seen to be the rate at which total employment is returning to its pre-pandemic level. Recent reports indicate that there are millions fewer people currently employed than before the pandemic. In addition, the labor force participation rate remains well below its pre-pandemic level, leaving many unfilled jobs in the economy. The shortage of construction workers in particular may impact plans to grow the supply of multifamily housing in 2022.

The rise of inflation and its persistence are also threats to the economy. The fear is that the Federal Reserve will take steps in response to the growth of inflation, such as raising interest rates, that will choke off growth in the economy. While this scenario could lead to a recession, Yardi Matrix believes that a recession is not likely to occur until after 2023.

The year 2021 was one for the record books for the business of multifamily housing. Asking rents were up 13.5 percent and Yardi Matrix estimates that absorption exceeded 400,000 units. However, this is well below the absorption rate of 670,000 units in 2021 estimated by RealPage. The nationwide occupancy rate reached 96 percent in late 2021.

For 2022, Yardi Matrix expects the rate of rent growth to fall to 4.8 percent. While this is down significantly from the level in 2021, it is nearly double the long-term average. Rent growth in 2022 is expected to be supported by continued recovery in the jobs market and by the rapid rise in housing prices and interest rates pricing some renters out of homeownership. Yardi Matrix reported that more than 350,000 units of multifamily housing were delivered in 2021. They expect deliveries to grow to 380,000 units in 2022, representing 2.5 percent of existing inventory. Currently, 800,000 units are under construction, a level that Yardi Matrix expects to be sustained through 2022.

Sales of multifamily buildings rose to $166.8 billion in 2021, up 30 percent from the previous high recorded in 2019. Per-unit prices also set a new high at $188,000 per unit. This was up 20 percent from the level in 2020.

Funding for multifamily mortgages remains readily available. The allocations for Fannie Mae and Freddie Mac were both raised this year by $8 billion to a level of $78 billion each. Funding from commercial mortgage-backed securities (CMBS) and collateralized loan obligations (CLO) also rose in 2021 and are expected to remain high in 2022. While not giving specific forecasts for 2022, Yardi Matrix noted that cap rates for multifamily housing have fallen to the 5 percent range. In certain markets, cap rates for class A properties may be below 4 percent.

---

Source: Prediction: 2022 will be a good year for multifamily housing

https://www.creconsult.net/market-trends/prediction-2022-will-be-a-good-year-for-multifamily-housing/

CRE Multifamily Mortgage Delinquency Rates Fell In Q4

 

CRE, Multifamily Mortgage Delinquency Rates Fell In Q4

Delinquency rates for mortgages backed by commercial and multifamily properties declined during the fourth quarter of 2021, according to the new Mortgage Bankers Association’s latest CREF Loan Performance Survey.

“The share of outstanding balances that are delinquent fell for both lodging and retail properties, as property owners and lenders and servicers continue to work through troubled deals. The share of loan balances becoming newly delinquent was the lowest since the onset of the pandemic,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research in the announcement of the results.

He noted it is encouraging that particularly there was improvement among property types that were the most impacted by the downturn.

The improvements in the delinquency rates were small as 97.0% of outstanding loan balances for commercial and multifamily mortgages were current at the end of the fourth quarter, up from 96.7% at the end of the third quarter of 2021 while 1.9% were 90+ days delinquent or in REO, down from 2.2% three months earlier and 0.2% were 60-90 days delinquent, unchanged from three months earlier.

The sectors in the survey which have seen the biggest stress, lodging, and retail properties, saw improvements during the period along with commercial and multifamily mortgages, as a whole. MBA reported 10.5% of the balance of lodging loans were delinquent by the conclusion of December, down from 14.0% at the end of the third quarter of 2021 as the end of the fourth quarter saw 7.6% of the balance of retail loan balances were delinquent, down from 8.2% three months earlier. CMBS loan delinquency rates are higher than other capital sources because of the concentration of hotel and retail loans, but they saw improvement during the final three months of 2021 as well.   Source: CRE Multifamily Mortgage Delinquency Rates Fell In Q4

https://www.creconsult.net/market-trends/cre-multifamily-mortgage-delinquency-rates-fell-in-q4/

Multifamily Market Polarized by Renter Incomes

a

The pandemic’s second year witnessed a robust rebound in rental housing demand, which reduced vacancies and propelled rents higher. Lack of for-sale inventory kept many higher-income renters in their apartments, while the same lower-income folks who suffered the greatest COVID-related job losses were also most rent-burdened. That sober reality has heightened the need for a fully-funded housing safety net, which must take into account safeguarding existing housing from climate change threats.

These were among the issues discussed during the “America’s Rental Housing 2022” webinar, a Joint Center for Housing Studies of Harvard University panel discussion moderated by Vox policy reporter Jerusalem Demsas.

Expert panel

Offering their perspectives were panelists Peggy Bailey, senior advisor on rental assistance, Office of the Secretary for the U.S. Department of Housing and Urban Development; Calvin Gladney, president & CEO of Smart Growth America; Chris Herbert, managing director of the Harvard Joint Center for Housing Studies; and Kara McShane, managing director, commercial real estate for Wells Fargo.

Necessary policy considerations were top of mind for Bailey, who emphasized setting in place intentional policies that at the least subsidize rent and create the right incentives to develop affordable housing along with higher-end rental units. “We can internally look at things like the affordable housing assistance we currently employ,” she said. “We must look at how do we align our programs at HUD to get those pieces of the affordable housing capital stack working better, ensuring it’s easier to create affordable housing.”

Asked what banks can do to address the lack of affordable housing, McShane noted the affordable crisis is one of supply.

“So whatever we can do as a bank to increase supply and preserve the housing stock we have is what we need to do,” said McShane. “We need a solution from both government policy and the private sector . . . We need to partner together in the private sector, not just big banks but big tech, to create and preserve housing.”

Climate change

Keeping renters in their homes given the increased threat of climate change is a matter, Gladney opined, of the need to “stop doing dumb things.”

Continuing to build in flood-prone zones and in places where it’s recognized homes may burn to the ground are among those ill-advised moves, he added. “We allow things to happen in the market to put renters in harm’s way, and we need to stop doing that.”

Noting the difficulty of building multifamily housing in many places, especially in suburban areas, Herbert said states must take bigger roles in mandating zoning for denser housing within communities. “We can also lean into how we can build housing that’s more affordable,” he added. “Design professionals must be brought into how housing can be designed to make more efficient use of space.”

Another way to overcome resistance to denser development is to design multifamily housing that looks more like single-family housing, Gladney said.

Putting the capstone on the discussion, McShane stressed the need for partnership and collaboration. “One company or organization is not going to get it done,” she noted. “We all need to come together and keep people in homes they can be proud of.”

---

Source: Multifamily Market Polarized by Renter Incomes

https://www.creconsult.net/market-trends/multifamily-market-polarized-by-renter-incomes/

Chicago apartment market shows no signs of cooling off

 

The new report, released yesterday, shows that Chicago apartment rents had by the end of January increased by 15.6 percent when compared to the same month a year earlier.

Apartment List reports that the median rent for a one-bedroom apartment in Chicago stood at $1,265 at the end of January. That median figure rises to $1,395 for a two-bedroom apartment in the city.

For the entire state, median apartment rents have jumped 14.2 percent on a year-over-year basis. For the entire country, that year-over-year increase is 17.8 percent.

Not all areas of Chicago, of course, are seeing rents rise at the same rate. Apartment List reports that median apartment rents in the suburb of Lombard were down 0.9 percent on a year-over-year basis. The median rent for two-bedroom apartments in that suburb is $1,919, while one-bedroom units have a median rent of $1,438. Naperville has the most expensive rents among larger cities in the Chicago area. Apartment List reports that the median rent for a two-bedroom apartment in Naperville now stands at $2,033.

And the cheapest apartment rents in the Chicago area? You’ll find those in Waukegan. According to Apartment List, the median rent for a two-bedroom apartment in that suburb is now $1,212.

While renting an apartment in Chicago isn’t cheap, units are less expensive here than in many other comparable cities. San Francisco, for instance, has a median two-bedroom rent of $2,681, more than one-and-a-half the median two-bedroom rent in Chicago.

---

Source: Chicago apartment market shows no signs of cooling off

https://www.creconsult.net/market-trends/chicago-apartment-market-shows-no-signs-of-cooling-off/

Q1 State of CRE & Industry Outlook

Summary

Tune in on Wednesday, Feb 23 at 2 pm EST for a conversation about the current state of US commercial real estate markets and a look at key investment trends.

 

Experts from NYU Schack Institute of Real Estate, the Federal Reserve Bank of Atlanta, and CBRE will discuss recent macroeconomic and market data and the recovery outlook for multifamily, industrial, office, and retail properties as the 2022 kick-off. 

 

You'll learn about:

• How last quarter's macroeconomic, public, and private market data will impact your business
• Industry outlook for 2022 
• Economic recovery implications across property types and markets
• Data-backed areas of opportunity and risk for your business 
•  

REGISTER

Speakers

Brian Bailey Subject Matter Expert, CRE Federal Reserve Bank of Atlanta

Bryan Doyle Managing Director, Capital Markets CBRE

Timothy Savage Professor NYU Schack Institute of Real Estate

Richard Kalvoda Senior EVP Altus Group

https://www.creconsult.net/market-trends/q1-state-of-cre-industry-outlook/

Rates Jump to New 2-Year Highs After Fed Announcement

 

Fed policy is critically important to interest rates and January has marked a shift in the Fed policy outlook.  In not so many words, the Fed sees itself hiking rates and decreasing its bond purchased more quickly than previously expected.  It has conveyed this in various ways since the beginning of the month.  Today's policy announcement and press conference were just the latest iterations.  They were also arguably the least equivocal.

Despite the relatively clear communication from the Fed in recent weeks, financial markets were increasingly laboring under the misapprehension that the Fed would take a softer tone in light of recent market drama.  In other words, stocks have dropped significantly and rates spiked to 2-year highs as the Fed began its communication push this month, so perhaps they would "communicate" in a more market-friendly way today.

While it's not uncommon for some market participants to hope for such things, it was never very likely in this case (one of the reasons I reiterated that the Fed is not tasked with babysitting the market in yesterday's commentary).  True to form, the Fed paid zero attention to recent market movement.  In their view, rates are still low, and asset prices are elevated.  If anything, they feel they need to hustle when it comes to hiking rates and decreasing bond purchases.

Bottom line, the market was a bit flat-footed heading into today's Fed events.  When the Fed stuck to the tightening script rather religiously, rates were forced to snap back to the reality they'd previously done a good job of understanding.  Case in point, Treasury yields and mortgage rates are both very close to levels seen last Monday.  Mortgage rates just happen to have edged slightly higher, thus earning the dubious distinction of "highest in 2 years."

---

Source: Rates Jump to New 2-Year Highs After Fed Announcement

https://www.creconsult.net/market-trends/rates-jump-to-new-2-year-highs-after-fed-announcement/