Multifamily Ends 2024 on the Downswing
Yardi Matrix’s December Multifamily Report pointed out a couple of things:
- The year ended with the average U.S. advertised apartment rents dropping $4 and year-over-year rent growth at a somewhat anemic 0.6%
- Demand for multifamily product remains robust, “so regional and market-level rent change was determined by the amount of local supply growth”
Or, as Yardi Matrix’s Manager of Business Intelligence Doug Ressler told Connect CRE, “The multifamily market is performing well as demand continues to absorb supply.”
An Eye on Construction
Significant construction activity occurred in 2024, with 442,000 units completed across the United States. Meanwhile, 404,000 units were absorbed nationally. As supply began to slow in the second half of 2023, “elevated completion times leave a still-sizeable under-construction pipeline,” Ressler said.
However, this state of affairs won’t last forever, even in high-supply areas. “Multifamily completions will remain relatively robust in 2025, before declining in 2026 and 2027, which will boost performance of fundamentals,” Ressler commented.
A Regional Examination
Metro-level multifamily performance was mixed during the previous year. Regions with high supply experienced downturns in rent growth, while those bringing fewer new units online trended toward moderate growth.
Furthermore, absorption differed from region to region. The report indicated that “more units were absorbed than completed in the Midwest and Northeast.” This prompted a rent growth of 2.7% in the Midwest and 3.3% in the Northeast.
Meanwhile, advertised rents dropped by 1.1% in the Southwest and increased by only 0.6% in the West. In these areas, the completions outnumbered absorptions, the report said. Furthermore, record levels of new supply will continue capping rent growth, especially in markets that experienced rapid growth during the pandemic. Atlanta, Austin, Charlotte, NC and Phoenix are adding more units. “These markets, while fundamentally strong, are facing near-term headwinds as developers continue to deliver projects initiated during and just after the pandemic boom,” Ressler said.
At the same time, secondary markets should continue to benefit from economic stability, affordability and fewer unit deliveries.
Then, There are Economics and Politics
The December 2024 job numbers continued to demonstrate a healthy economy, as did the Q3 GDP growth of 3.1%. More jobs generally mean a greater need for housing. But the fly in the ointment continues to be interest rate uncertainty.
In September 2024, the Federal Reserve cut the Effective Federal Funds Rate (EFFR) by 50 basis points, signaling its satisfaction with cooling inflation and other economic indicators. Three months later, the tide turned, with 256,000 jobs added in December 2024 and the latest Consumer Price Index showing a slight increase in inflation.
This, in turn, is generating questions as to how the Fed will react in 2025. Another issue that could impact the multifamily sector is how far the Trump administration will go with its threatened tariff increases.
These uncertainties have pushed 10-year Treasurys upward, “creating ongoing pricing uncertainty that could keep deal flow muted,” the report said.
What About Debt Maturities?
Debt maturities remain a concern, with multifamily included in the mix—estimates of how much range from $500 billion to over $1 trillion.
“There will be an increase in multifamily distress, but it will be limited to certain situations,” Ressler said. These include value-add deals financed with short-term debt in the early 2020s, now facing refinancing challenges.
Also potentially problematic are construction loans in high-growth markets and local distress “due to government regulations and rent control, causing expenses to rise faster than income,” Ressler said.
Finally, developers active in areas generating high supply levels could face some issues. “High levels of new supply create longer-than-expected lease-up periods,” Ressler commented. “The delay in stabilized occupancy is creating financial distress for developers who are unable to meet loan obligations within projected timelines.”
