Hello i was wondering if multi family complex tend to follow the same market trends as SFH. For example if the SFH market is doing great due to lots of work in the area would Multi Units follow the same path or go down due to a lot more people being able to afford to buy instead of rent? If anyone has any experience with this i would greatly appreciate it htanks
I think the answer is “not necessarily”. For example in Denver where I am based, we have one of the highest foreclosure rates in the nation BUT the apartment occupancy rates and rents are on the rise.
The multifamily market doesn’t exactly follow the SFR’s meaning when the SFR market is good it doesn’t mean the multifam is good. But they do effect each other. For eaxample, what I have been seeing in the Southern California market is increasing rental demand due to the low affordibilty of the area. Also we are seeing allot of ajustable mortgages beginning to reach the end of thier fixed periods and owners are not able to afford the increased payments. This is especially true for the individuals who bought with little to no money down. More and more people are beginning to move back into rental units. There is also a recent economic report put out by an economist from UCLA (or USC I forget the actual school) claiming that their is a significant shortage of rental units with the demand vs supply being something like four familes per existing rental unit. He expects this number to rise significantly over the next few years and believes the majority of the profits made in the real estate industry will be in developing affordable multifamily buildings.
To answer your question more directly, the mulifamily market is controlled by the same economic principles that govern the SFR’s. When demand is high (for rental units) vacancy rates drop and rental prices increase thus theoritically pushing values higher; and visa versa. However, it is interesting to note that prices here in Southern California for multiunits were appreciating dramatically similarly to SFR’s over the past few years at a much quicker rate than rents lowering the cap rates significantly. This was do to the fact that the rental shortage mentioned by the UCLA economist is not a recent development and in fact has been an existing problem for a while which builers were ignoring because of the profits they were expericing in new home development. So instead of meeting the demand for multifamliy property buildiners put single family homes on the vacant lands they owned and consequently built slightly beyond demand. Leaving the demand for rental units almost untouched. Anyway, with the Southern California population continuing to increase and the influx of former home owners moving back to rentals, retntal demand continues to increase dramatically. We are seeing a slow down in value appreciation back to more normal rates but still relatively high due to appreciating rents. Sellers similarly to SFR sellers are still expecting those huge increases in value they have been enjoying but the reality is many properties right just don’t make good business sense and sellers are being faced with learning that in order to get their proprties sold in a timely manner they have to be less greedy and leave some profit behind for the next owner. Or they’ll never get thier property sold.
Apartment complex and SFH trends tend to act like a see saw—when affordability is an issue, demand for SFH goes down but the demand for apt. complexes rise.
Conversely when rates are low (and affordability is extended), demand for SFHs go up and apt complexes take a back seat.
Exceptions to the rule: Inflation and location.
Regards,
Scott Miller
Scott is right on! With the continued climb in interest rates and foreclosures, the rental market will also climb.
Thanks you all for your input, i found the info very helpful