A Clear Direction Forward – April 21, 2025
Despite near-term volatility, the outlook favors multifamily investment
Berkadia’s latest quarterly report arrives at a time of “uncertainty” and “market volatility” (the words are taken from the report’s title), with a rising tide of trade wars only one of the factors shaping the macroeconomic environment. So then, how’s the outlook for multifamily investment?
On balance, the long-term viewpoint is positive. In the near term, there is that aforementioned volatility to contend with.
“Traders have increased their expectations for Federal Reserve interest-rate cuts this year, and U.S. treasury rates can’t decide on a direction despite a strong print on American jobs,” according to the report. “Markets are fully pricing in a quarter-point rate reduction by June, with a chance of a larger reduction, and traders expect the European Central Bank to lower interest rates more sharply. Agency CMBS spreads have widened significantly week over week on an avalanche of new issue volume paired with general market uncertainty.”
Yet the forecast for the rest of the 2020s provides an incentive for investors to trim their sails in accordance with current market turbulence. Ongoing demographic trends provide a clear direction forward.
Although just 22 of the RealPage Top 100 markets experienced positive net migration and net apartment absorption annually since 2020 and the geographic spread of these (primarily secondary and tertiary) markets is wide, “the strongest net migration and net apartment absorption was in the Sunbelt Region of the country,” Berkadia reported.
In many of the larger Sunbelt metro areas, year-over-year rent growth has been negative in recent months, according to the latest Yardi Matrix report, while major East Coast and Midwest markets are growing faster than the national average. However, one of the drivers of the rent declines in the Sunbelt has been a heavy influx of new supply, which is now slowing down.
Although the first quarter of 2025 marked the eighth consecutive quarter of record completions, “it’s clear the tide has turned, as the pullback from the final few months of 2024 was considerable,” RealPage reported on Friday.
Another favorable metric in fast-growing Sunbelt markets has been supply in another residential sector: single-family, for-sale homes. “For many new households in these markets, homeownership is a preferred option,” reported Berkadia. “This segment is facing a competitive landscape.
“Monthly active listings post-pandemic for all markets are trailing pre-pandemic levels. Reasons for this range from the mortgage lock-in effect to rising home prices to limited single-family home starts. This is benefiting the apartment industry as multifamily deliveries have swelled in recent years.” At the same time, the slowdown in deliveries will benefit apartment operators in these markets, as well as projected net migration through 2029.
While the change of administrations in Washington, DC has brought the imposition of tariffs and with them uncertainty, there’s also a welcome emphasis on HUD-insured financing and other public-private vehicles as espoused by Housing Secretary Scott Turner. “During the current administration’s first term in office, HUD-insured multifamily loan origination drastically increased, a significant pickup from 2014-2016 when volumes lagged,” according to Berkadia.
Conversely, the Biden administration’s priorities, combined with a run-up in interest rates, led to “policies which severely limited the program’s ability to provide a meaningful source of capital to the market from 2022-2024,” Berkadia reported. “Current market conditions are fitful, but there is confidence the administration will enact policies to bring HUD-insured programs back to strong historical levels over this presidential term.”