What is turning out to be the potential ‘shock of the year’ in the real estate industry may just be a hoax! Many in the industry are of the view that now the housing market looks set to continue where it left off in 2006, multifamily homes will soon wane. However, the fall of 2014 suggested that since the last seven quarters prior to fall, investment in the multifamily market has increased. It reached a peak level in terms of sales ; annual growth increased by 10.4% on a year to year basis. So where is the multifamily market headed in the last half of 2015? For that, we will have to take an overview of the market.
Multifamily Market Analysis as of 2014
While essentially used as a hedge against recession, multifamily apartments did increase the potential of a sustained market that remains strong despite the continuing economic woes. Since 2013, the housing market has shown great signs of recovery, almost like an impossible comeback that you would only expect from the likes of Rocky Balboa.
For instance, the sustained investment from both local and foreign sources in the multifamily housing market has only driven cap rates to compress even more in a growing primary, secondary, and tertiary markets.
However, we have also experienced a significant drop in the average homeownership rates, which suggests that absorption in the market is superseding new deliveries. To make matters worse, as inventory under construction is growing at 4.4% and looking to grow even further, the multifamily housing market is looking rather bleak.
As personal loans are on the rise, multifamily assets are continually exposed to forfeiture and closure, since investors tend to offer their investments as a collateral security against the loan. However, in the longer run, multifamily assets will still remain profitable investment ventures.
While the multifamily housing market may soften over the next couple of years, we have to take into account that the current real estate market favors sellers more than buyers. In this regard, the average listings for different types of properties are subsequently increasing as well, and so are the median prices of homes. As a homeowner, the market couldn’t look any more favorable as it can help them to return back to positive equity or capitalize on the investment opportunities. For a home buyer, the market continues to get more and more expensive, but at the same time, banks and mortgage lenders are working to introduce moderate mortgage standards.
Despite the fact that the multifamily housing market is shrinking, it is a misinterpretation of the market as a whole. For instance, the secondary and tertiary markets around the US are overseeing increasing construction and development activity for multifamily assets, while the same in primary markets is on the downfall.
Multifamily homes increased in popularity during the recession and during the housing market crash of 2007. Development activity for such types of properties was considered as a more viable option than developing homes, villas, and other properties.
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