Podcast Summary
Rent growth trends vary by location in multifamily market: National rent growth declined by 0.66% in late 2023, with some areas experiencing negative growth due to oversupply and others positive growth due to undersupply.
The multifamily market, specifically properties with 5 units or more, is experiencing varying rent growth trends depending on the location. At a national level, rent growth declined by approximately 0.66% in late 2023, marking a significant deviation from the typical 2-3% annual growth. This decline can be attributed to a mix of factors, including inflation and local market conditions. Some areas, such as Austin, experienced negative rent growth due to oversupply and an influx of new units, while others, like St. Louis and Kansas City, saw positive rent growth due to undersupply. The expert, Kim Bettencourt, Vice President of Multifamily Economics and Strategic Research at Fannie Mae, emphasized that the rent growth trends are highly dependent on the specific market conditions. The decline in rent growth could be a correction from the steep rent increases seen after the pandemic.
New multifamily housing supply is concentrated in certain areas, leading to a volatile market: Despite over 560,000 new multifamily units added last year, uneven distribution and long construction timelines mean not enough housing is being built to meet demand, causing a volatile market with some areas facing oversupply and others a housing shortage.
The multifamily housing market is experiencing a period of increased supply, with over 560,000 new units added last year. However, this new supply is not evenly distributed and is concentrated in certain metros and submarkets. This has led to a volatile market where some areas may be oversupplied, while others still face a housing shortage. Furthermore, the long construction timeline for multifamily properties means that units started a few years ago are just now coming online. While we are working through this glut of construction, there is still not enough housing being built to meet the expected demand due to the concentration of new supply in specific areas. Additionally, rent growth on new leases has been declining, with people opting to renew their leases instead, leading to a decrease in rent increases for some renters. Overall, the multifamily housing market is undergoing significant changes, and understanding the timeline and distribution of new supply is crucial for navigating this landscape.
Mismatch between supply and demand for affordable housing: Despite an oversupply of high-end apartments, there's a lack of affordable housing in many areas due to builders focusing on expensive units and new construction being pricier.
While there may be an oversupply of higher-end apartments in certain metro areas, there is still a lack of affordable housing in many places. Builders have been focusing on constructing more expensive units due to the younger demographic and job growth in certain areas, leading to a mismatch between supply and demand for affordable housing. This issue is further complicated by the fact that new construction tends to be more expensive, and builders are charging higher rents. It's essential to understand that the housing market varies greatly depending on the metro area and submarket, and there may be a lack of affordable housing in areas where it is needed most. Overall, the housing market is complex, and there are both supply and demand issues that need to be addressed to make housing more accessible and affordable for everyone.
Passive income opportunities in real estate: Mortgage fund vs Rent to Retirement: Explore passive real estate investing through a mortgage fund for a stable 8% return or invest in new construction turnkey rentals via Rent to Retirement with minimal upfront costs, but be aware of associated risks and qualifications.
There are different ways to invest in real estate for various levels of involvement and financial situations. Pine Financial Group offers a passive income opportunity through their mortgage fund, providing a targeted 8% preferred return and contributing to community revitalization. On the other hand, Rent to Retirement provides an opportunity to invest in new construction turnkey rental properties with little to no money down. However, it's important to note that real estate investing involves risks, and the availability of these opportunities may depend on individual qualifications. Additionally, the multifamily market undergoes a process called filtering, where new construction can impact affordability for older properties. This filtering effect can lead to changes in class designations and affordability levels.
Renters staying longer in multifamily housing: Demographic shifts and a supply shortage are causing renters to delay homeownership, leading to increased vacancy rates and unique challenges for investors in the rental market.
The widening gap between rent prices in Class A and Class B properties, coupled with demographic shifts and a shortage of supply, has led to an increase in renters staying in multifamily housing for longer periods. This trend, known as "renters by choice," is putting pressure on the supply of rental properties and causing vacancy rates to inched up as new supply comes online. Additionally, older millennials and Gen Zers are delaying homeownership due to factors like higher interest rates, lack of supply, and the appeal of rental living. These demographic shifts and market trends are leading to a rental market with unique challenges and opportunities for investors.
Rising Class A vacancy rates vs. tight Class B and C rates: Rent growth to be subdued in 2024, pick up by 2025 due to slower new supply and increasing demand, despite affordability concerns.
While Class A office vacancy rates are rising due to new supply, Class B and C vacancy rates remain tight, leading to a lack of affordable housing options. Looking ahead, rent growth is expected to be subdued in 2024 due to ongoing job growth being slightly below expectations. However, by 2025, as new supply slows down, rent growth is projected to pick up as demand increases and the Gen Z demographic continues to rent. Despite recent rent declines, affordability remains a concern as many people struggle to afford the current rents of available units.
Pressure on Class B and C renters to catch up with rent growth: Class B and C renters face affordability challenges due to slow wage growth and rent growth, but this trend may improve slightly if rent growth remains low for another year. Demographics and positive job growth make multifamily a long-term attractive investment.
While rent growth has slowed down for Class B and C renters, their wage growth has not kept pace with the rent increases seen in recent years. This, combined with inflation, has put pressure on these renters to catch up. However, if rent growth remains subdued, affordability may improve slightly due to wage growth. Yet, it's important to note that this trend is regionally variable, and rent growth is expected to remain low for only another year. Investors should keep in mind that thin trading and lack of price discovery in the multifamily sector may impact valuations. Despite these challenges, the power of demographics and positive job growth make the multifamily sector an attractive long-term investment.
Supply constraints could impact multifamily market sooner than expected: Research suggests supply constraints may affect long-term investment decisions in multifamily market, DealMachine offers efficient lead generation, NetSuite reduces costs and headaches, and BetterHelp provides therapy services
Supply constraints could impact the multifamily market sooner than expected, according to Kim Wallace's research. This could have implications for investors looking to make financial decisions on a longer time frame. For those looking to learn more about Wallace's research, a link will be provided in the show notes. For listeners wondering how this news affects their investment strategies, stay tuned as Dave and Ken discuss this further. Additionally, DealMachine offers unlimited access to phone numbers and contact information for off market deals at no extra cost, making lead generation and deal making strategies more efficient. On the business side, NetSuite by Oracle can help reduce costs and headaches by bringing accounting, financial management, inventory, and HR into one platform and source of truth, all while living in the cloud and reducing IT costs. Lastly, BetterHelp offers therapy services to help individuals make the most of their time and address any challenges they may be facing.
Discover priorities and reduce stress with therapy and smart investments: Therapy helps prioritize personal growth, while smart real estate investments offer financial gains and security
Therapy, through platforms like BetterHelp, can help individuals discover their priorities and live a more fulfilling life with less stress. Meanwhile, investing with companies like Integra Development Group offers a simplified approach to real estate investing, providing immediate cash flow, built-in equity, and a solid exit strategy. In the multifamily market, while rent growth and vacancies are crucial for long-term success, current trends indicate a slowdown, leading to concerns about potential crashes and decreased valuations. Kim Bettencourt, a multifamily expert, expects this trend to continue. Overall, prioritizing personal growth through therapy and smart, simplified investments in real estate can lead to significant improvements in one's life and financial situation.
NOI growth in multifamily market may remain stagnant but could pick up: Stay informed about market trends to make realistic projections and secure financing for multifamily investments. Identify opportunities in B and C class properties and find an investor-friendly agent for guidance.
Net Operating Income (NOI) growth in the multifamily market is expected to remain stagnant in the next year but may pick up after that. This news could be beneficial for multifamily investors trying to navigate through current market challenges, such as high interest rates, rising cap rates, and stagnating rents. For prospective buyers, this information could help in identifying potential opportunities to invest in B and C class properties that may become available. However, securing bank underwriting for deals requires long-term forecasting and conservative underwriting. Understanding the anticipated rent growth trend can aid in making more realistic projections and potentially avoid financial troubles. The market is volatile, and financial freedom remains the ultimate goal for investors. To navigate the real estate market effectively, finding an investor-friendly agent is crucial. BiggerPockets Agent Finder can help match you with the right local expert to guide you through the process. Remember, it's not about timing the market, but rather time in the market. Stay informed, and happy investing!
