After a year of continued strong growth in the multifamily market, Freddie Mac projects that origination volume will continue growing into 2020, reaching $390 billion by year end.
Rent growth will continue at levels just above the historic average, and new supply will continue to be absorbed as demographics and lifestyle preferences continue to fuel consumer demand for rentals, according to the outlook, according to Freddie Mac.
“We believe the most likely scenario for 2020 is one of continued growth in the multifamily market,” Steve Guggenmos, Freddie Mac’s vice president for Multifamily Research and Modeling, said in the release. “While there are several economic uncertainties that could impact the broader economy, the fundamentals backing multifamily remain solid.”
The paper outlines several key findings:
- The multifamily market is expected to finish 2019 with solid rent growth and only modest increases in vacancy rates despite an elevated level of new supply.
- New supply is having only a marginal effect on vacancies.
- Multifamily construction will remain elevated through 2020 and into 2021 based on permits and starts that already are underway.
- Demand is expected to remain robust due to demographic and lifestyle preferences, but with the continued level of elevated supply, vacancy rates may increase just above the historical average. As a result, gross income growth may decline to just below the historical average but remain well above target inflation in 2020.
“Investor demand remains strong with originations nearing $400 billion,” Freddie Mac said. “Lower interest rates, along with solid multifamily fundamentals and strong investor demand for multifamily properties, kept cap rates relatively flat throughout 2019 and cap rate spreads were historically at the start of 2020.”
As a result, multifamily origination volume is expected to come in at $369 billion in 2019, up 8.8 percent from 2018 and is projected to grow to $390 billion in 2020, an increase of 5.7 percent.