Earlier this year it had looked as though the U.S. economy was becoming somewhat unstable, causing a bit of concern. However, according to Yardi Matrix’s Fall 2016 U.S. Multifamily Outlook report, despite these growing concerns the economy has appeared to have bounced back and continues to maintain a steady pace.
Chris Nebenzahl, a senior analyst for Yardi Matrix in Denver, says that two very important economic fundamentals remain strong, even though the economy is still technically slow-going. One of these is a strong and growing GDP (gross domestic product), which remains to be evident, even though it isn’t growing as fast as was predicted at the beginning of the year. The second is job growth. Nebenzahl says this is the backbone of the economy, which continues to push forward at a rate of 2.3 million new jobs per year. Even though this number is lower than it has been over the last few years, it still shows positive growth.
We’re not only seeing strong growth in supply, but we’re also seeing strong demand which is allowing those rents to stay high and continue to grow
“These two things are what continue to drive the economy forward, slowly but surely,” Nebenzahl said. “What this is doing is keeping the market at a good place for multifamily, and for real estate in general.”
The report continued on to say that wages are also showing signs of growth but not in accordance with rent growth, which could potentially worsen the housing affordability crisis. In the last few years rental rates have grown rapidly, around six percent annually, says Nebenzahl. That number has come down to between four and five percent this year, however, wages are still growing at only 2.6 percent per year in comparison.
“That gap between the wage and rent growth have led to rents becoming unaffordable in certain areas,” Nebenzahl said. “Similarly, rising house prices have led to single family homes becoming less affordable, which has forced some back into the rental market.”
National rent growth remains strong, as Seattle leads rent increases with the second highest yearly growth, forecasted at 9.8 percent for the year. With a national delivery of 360,000 units, 2016 shows promise of reaching a peak year as these numbers are up 45 percent from last year. Of these total units, Seattle is set to deliver 11,724.
The reports shows that the largest supply growth can be found in secondary markets with heavy tech and startup economies, Seattle being one of them. “Seattle is kind of on the cusp between a primary and secondary market,” Nebenzahl said.
Nebenzahl added that the apartment information service is tracking a huge demand in Seattle, and for all of the Pacific Northwest region. However, Seattle in particular has seen a steady increase of supply, which remains evident by the number of cranes in the sky.
“Job growth is doing quite well in Seattle and offers a very diverse economy, not only with Boeing, but also Microsoft, Amazon and other big companies that are driving that strong economic growth,” Nebenzahl explained. “We’re not only seeing strong growth in supply, but we’re also seeing strong demand which is allowing those rents to stay high and continue to grow.”
While multifamily rents are anticipated to moderate next year on a national level, the report says the sector should continue to reap the benefits of stability. The demand factors that have created the high occupancy rates will remain in place, which in turn will keep investors interested. “As the new supply hits the market, demand should remain strong,” Nebenzahl said.