While job growth and home values were not booming in an upward direction last year, home construction of multifamily units with five or more units leaped 56 and 38% respectively according to NAHB estimates. While most sectors in real estate are struggling to return to prior levels, the multifamily/apartment market continues to show solid performance. Here are three trends that have spurred this growth.
Demand continues to increase
The decline in the housing market affected demand. Many homeowners experienced foreclosure, were delinquent on mortgage payments, or found they owed more on their mortgage than their home was worth. Regulations from lenders to qualify for a mortgage became stricter, and the major decline in home values led many first time homebuyers to continue to rent rather than buy because the recent recession showed that home value increases are not necessarily guaranteed. With demand increasing in this sector for apartments, investors are targeting their attention this direction.
Lenders have remained cautious with real estate projects, particularly residential ones. However, the multifamily sector continues to see the most financing activity. Because of this high demand for rental units, average occupancy rates have climbed upwards of 95% in most markets, causing rental rates to increase modestly over the past year. Investors have recently been generating solid cash flow to support a financing arrangement for their properties and this has caused lenders’ appetite for financing multifamily projects to remain strong.
Supply Must Increase
Because the demand for apartment rentals has increased, the construction market has also increased and continues to see some signs of recovery with respect to apartment projects. Overall, many projects are planned or have begun in the last few months to address the high demand from renters and investors.
Multifamily housing is expected to remain strong, but will continue to be affected by changes in the housing and job markets. If housing prices continue to stay at recessed levels, demand for rentals should stay strong. In addition, slower job growth will also keep interest in multifamily rental units high. Louisville custom home builder PL Lyons knows how to help you assess homebuilding trends and make a decision that will best fit your long-term financial needs.