Three Reasons To Feel Positively About Multifamily Real Estate Right Now
Residential real estate is a large asset class with a strong impact on the economy as a whole. We all need a place to live, and multifamily real estate is considered a steady investment.
Recently, concerns have been raised about the rising number of distressed multifamily real estate loans. CreqIQ reported that these loans continued to move in the wrong direction, rising to 11.0% from 8.4% last month. Multifamily is now only behind retail when it comes to distress.
Check It Out:
A billion-dollar investment strategy with minimums as low as $10 — you can become part of the next big real estate boom today.
This is a paid advertisement. Carefully consider the investment objectives, risks, charges and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the Fund's prospectus. Read them carefully before investing.
This billion-dollar fund has invested in the next big real estate boom, here's how you can join for $10.
This is a paid advertisement. Carefully consider the investment objectives, risks, charges and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the Fund's prospectus. Read them carefully before investing.
However, some positive data comes from Newmark, which has issued its United States Multifamily Capital Report. Three data points indicate that multifamily may rise to meet the challenges it faces.
Demand Is Still High
The report showed that demand for the second quarter was up by 102%. Another encouraging sign was that, despite some signs of weakness in the Sun Belt, demand in Sun Belt markets within the top 50 markets was actually on the upswing. Renting remains more affordable than homeownership in many top urban markets, with the spread between renting and owning at $1,114 in the quarter. Although mortgage rates are starting to drop, many people still opt to rent, waiting for housing prices to fall.
If people are worried about their finances, renting could become more attractive. The second quarter data from the New York Fed found that auto loans rose by $10 billion to $1.63 trillion and credit card balances increased by $27 billion to reach $1.14 trillion.
One hurdle for multifamily real estate is supply. Supply was at its highest rate ever in the second quarter. This trend is expected to continue for the rest of the year and gradually weaken into next year. Supply may outstrip demand in some markets, sending rental prices downward slightly, but this is likely temporary. Units under construction have been down for the last four quarters.
Transactions Are Growing
Transaction volume has been sluggish for several years, but there are signs of light at the end of the tunnel. The Newmark report found that transactions were up by 20.4%, representing the first positive change since the second quarter of 2022. Los Angeles and Dallas led the way in sales volume, with the Southwest and Southeast representing 45.8% of all sales volume.
Dry powder is going down as deals get done, and available capital is down 10.3% since its peak in December 2022. Fundraising was up by 31% and more funds are raising capital than in recent months.
Expenses Might Be Slowing Their Pace Of Increase
Multifamily owners have had to deal with rising costs over the last few quarters, but there seems to be some relief coming, albeit slowly. Expenses were up 5.1% in the quarter, but the pace of increase is trending downward. The biggest concern for many operators right now is insurance. Since the pandemic, insurance has been a larger part of the total expenses. Prices are rising in that area but are coming down from recent peaks.
The lending climate is a shadow over the future of multifamily. Loan originations are still down, but deals are being made and some lenders are noticing an increase in multifamily lending. The report noted that regional banks must reduce commercial real estate debt exposure. Newmark forecasts this will play out over the next several years as $669 billion in multifamily loans mature between now and 2026.
Over the long term, multifamily tends to be a very resilient sector. The number of loans in distress does represent a material concern, but it also creates a climate where more transactions may occur. Over the long term, issues around housing affordability and the more transient nature of much of the workforce should keep multifamily demand strong in most markets.
You Don't Have To Be A Direct Investor To Profit From Real Estate
The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields and you don't have to be a landlord to do it. Certain private market real estate investments are giving retail investors the opportunity to capitalize on these high-yield opportunities and Benzinga has identified some of the most attractive options for you to consider.
For instance, the Ascent Income Fund from EquityMultiple targets stable income from senior commercial real estate debt positions and has a historical distribution yield of 12.1% backed by real assets. With payment priority and flexible liquidity options, the Ascent Income Fund is a cornerstone investment vehicle for income-focused investors. First-time investors with EquityMultiple can now invest in the Ascent Income Fund with a reduced minimum of just $5,000. Benzinga Readers: Earn a 1% return boost on your first EquityMultiple investment when you sign up here (accredited investors only).