November 22, 2024
By: Travis Watts, Director of Investor Development
Every quarter as part of our Ashcroft Insights Market Report, we highlight industry reports, data, and trend research for multifamily investors. Below is an overview of what we’ve been reading and studying in Q4 2024:
Improving Market Conditions: According to Multi-Housing News, the U.S. multifamily market is showing signs of gradual improvement, despite challenges in certain regions. National rent growth has rebounded, with average rents rising modestly by 0.8% year-over-year as of August, while occupancy rates for stabilized assets held steady at 94.7%. These improving conditions offer a promising outlook for multifamily apartments, particularly in core and stabilized markets where demand remains strong.
Rates on the Decline: On November 6, 2024, the Federal funds rate was reduced by an additional 25 basis points or 0.25%, bringing the target rate range to 4.5% to 4.75%. The Fed is expecting to cut rates further, but it is not clear just how quickly or aggressively those reductions will come. Jerome Powell suggested that central bankers are watching incoming data as they weigh whether to cut rates in December. The next Fed meeting is scheduled for Dec. 18.
As most of you are aware, our industry is very sensitive to interest rates since we borrow so much to fund the purchase of the properties. However, the recent move by the Fed doesn’t directly impact the rates at which we borrow at. The Fed funds rate is highly correlated with short-term borrowing, but we borrow money longer-term, so the ten-year treasury is far more relevant for us.
With that in mind, we believe the remainder of 2024 and 2025 will create a favorable environment for investors, as multifamily assets typically perform well in low-rate environments, where financing costs are key. Investing in such assets now could yield significant long-term benefits as rates decrease, potentially driving higher demand and property values.
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20240918.pdf
Construction Slowdown: Multifamily construction in the U.S. is experiencing a slowdown after reaching post-pandemic highs. The number of new starts has significantly decreased, particularly as developers have pulled back in response to rising costs and economic uncertainty. According to the National Association of Home Builders (NAHB), multifamily starts are projected to drop by 20% by the end of 2024.
Despite this, a significant number of units remain under construction, which will continue adding to supply throughout the year and into 2025. This supply influx, paired with shifting demand trends, indicates a period of stabilization for the multifamily market. The slowdown may result in significantly lower deliveries in 2025 and 2026, which could in turn boost rental growth.
Renting Affordability: According to the Fannie Mae Home Purchase Sentiment Index released in November 2024, only 20% of consumers believe it’s a good time to buy a house. Renting remains more affordable than owning a home in many parts of the United States, particularly in major metropolitan areas.
Rising home prices and high mortgage rates—According to Freddie Mac, as of September 19th, 2024, rates are hovering around 6.09% for a 30-year fixed-rate mortgage. The gap between the monthly costs of homeownership and renting remains high, though it has narrowed slightly since September’s rate reduction. November 7th, 2024, rates are hovering around 6.79% for a 30-year fixed-rate mortgage. The gap between the monthly costs of homeownership and renting remains high.
According to Apartment List, millennials have developed a reputation for struggling in the housing market. As a comparison, by age 30, 55 percent of the Silent generation owned homes, compared to 48 percent of Boomers, 42 percent of Gen Xers, and just 33 percent of Millennials.
New survey data from Apartment List shows that in 2022, 24.7% of millennials said they plan to continue renting long-term rather than buy a house. This is nearly twice the percentage from a survey in 2018 (13.3%).
Here are the reasons 2022 survey respondents gave for continuing to rent long-term:
- 74% said they cannot afford to buy a home right now
- 42% said they like the flexibility of renting
- 36% said they prefer to avoid home maintenance and other extra costs
- 29% said buying a home is financially risky
Investors believe the worst is over: According to John Burns Research and Consulting, despite recent challenges in commercial real estate (CRE), most investors expect growth in the near future. Over half (56%) expect CRE asset values to bottom out in 2024, while 38% think values have already reached their lowest point.
The Federal Reserve’s aggressive rate hikes beginning in 2022 largely dried up capital, hitting the commercial real estate sector particularly hard. The office sector struggled due to the shift to remote work, while the multifamily sector faced oversupply. Signs of easing inflation and softening labor markets are fueling expectations for additional interest rate cuts, which could revitalize investment activity. For apartments, we’re seeing a solid labor market, higher-than-expected demand/absorption, and the prospect of lower rates driving optimism.
Conclusion: At Ashcroft Capital, we remain committed to identifying investment opportunities that align with current market trends. As always, we will continue to monitor and report on key economic indicators to keep you informed.
If you have any questions, suggested topics or would like to discuss future opportunities, don’t hesitate to reach out. We appreciate your trust in Ashcroft Capital. For additional articles and resources, please visit our News Section.
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