According to Freddie Mac’s 2023 Multifamily Outlook study, multifamily fundamentals’ present trajectory shows that it is on pace for a decent 2023, however, it may be a stronger second half compared to the first half.
Rents are anticipated to grow, albeit at a moderate pace, with the first few months of the US economy as a whole bearing a significant influence.
According to Freddie Mac, Vacancy rates will grow as a result of slower demand brought on by economic uncertainty and the massive volume of new supply being added to the apartment market. Until interest rate volatility can be reduced, allowing for price discovery, the volume will be restricted.
However, it is anticipated that housing prices will drop in 2023, and data sources indicate that more new multifamily supply will enter the market at a time when demand would be waning. The situation of the labor market during the course of the upcoming year, in our opinion, poses one of the largest threats to the performance of the multifamily market in 2023.
Overall, timing will be very important.
Given the anticipated increase in cap rates, Freddie Mac predicts that real estate values will remain stable but “may see minor decreases in the year ahead.”
This will result in a decrease in transaction volume through the end of 2022 and into 2023.
Freddie Mac anticipates volume in 2022 to be in the $460 billion to $470 billion range, down 5.5% year over year, and volume in 2023 to be down around an additional 4% to 5% to $440 billion.
According to its study, we anticipate fewer transactions given the negative leverage scenario, which supports the notion that investors are waiting for the market to return to an equilibrium
Given their anticipated low note rates and the robust recent market performance, we believe many financed properties are well positioned to cover their loan obligations. As a result, debtors are less under pressure to sell real estate at a cheaper price and might instead wait for better investment possibilities, which would also reduce overall business volume.
The business stated that these projections are predicated on slower increases in Treasury rates and inflation.
The timing of this affects the anticipated volume rise in 2023, according to Freddie Mac. We might see a greater volume in 2023 if this occurs sooner and investment demand rises sooner. We could anticipate lesser volume if it takes longer, especially if the economy enters a recession, as the price discovery and negative-leverage condition are protracted.
