A new report released last week by Freddie Mac predicts the U.S. multifamily market should remain strong through 2017 despite the flood of new apartments putting upward pressure on vacancy rates.
In 2015, more than 300,000 units were built and entered the U.S. multifamily market — the most since 1989.
“Favourable demographic trends, strength in the job market and reduced affordability of owning a home will continue to fuel strong demand for multifamily rental units,” the report said.
In recent years, lending to multifamily projects has become big business for banks, and that growth has been an important component of the housing recovery. Reports like this are closely watched given market crashes commonly follow spurts of rapid economic growth.
Federal regulators warned late last year that they are concerned about credit and interest rate risk on apartment and other multifamily loans. They urged lenders to contain concentrations of commercial real estate on their books and to rein in their loosening underwriting standards.
In 2015 the U.S. multifamily market had a strong growth rate of 4.6 per cent due to low vacancy rates and rising rents. Freddie Mac projects property revenue growth of 3.9 per cent in 2016 and 4.3 per cent in 2017 with a long-run average of 3.3 per cent.
The calculation of revenue growth is based on employment growth and the supply of new units coming on the market as well as other factors.
In 2015 lenders originated a record $256 billion in multifamily loans, according to the Mortgage Bankers Association. Freddie Mac purchased $47.3 billion in multifamily loans in 2015 and Fannie Mae purchased $42.3 billion in multifamily loans.
About Freddie Mac
Freddie Mac participates in the secondary mortgage market by purchasing mortgage loans and mortgage-related securities for investment and by issuing guaranteed mortgage-related securities, principally those we call PCs. The secondary mortgage market consists of institutions engaged in buying and selling mortgages in the form of whole loans (i.e., mortgages that have not been securitized) and mortgage-related securities.
Freddie Mac is operating under a conservatorship that began on September 6, 2008, conducting our business under the direction of the Federal Housing Finance Agency (FHFA).
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