In recent years, the focus in real estate has been on residential properties, with factors such as higher mortgage rates for single-family homes and slow rent growth for multifamily units. To gain insight into this market, a July 10th Walker Webcast featured Ivy Zelman, Executive Vice President and Co-Founder of Zelman & Associates. In an expert discussion with host Willy Walker of Walker & Dunlop, various housing topics were explored.
Increase in Household Formation
Zelman & Associates’ analysis shows a rise in household growth due to increased immigration and young adults leaving home. This has led to a greater need for shelter and is expected to benefit the multifamily sector more than single-family homes.
Slowdown in Single-Family Home Sales
The current state of the single-family housing market is experiencing slower sales despite robust new construction activity driven by rising interest rates. Inventories are starting to increase which could lead to price deceleration but also presents opportunities for buyers looking for well-located homes.
Affordability Concerns Persist
Affordability remains an issue due to high mortgage rates that discourage homeowners from selling their properties if they have low-interest mortgages below 5%. Even if there are cuts made by the Federal Reserve on EFFR (Effective Federal Funds Rate), it may not result in lower mortgage rates as these changes are already priced into long-term yields according to Zelman’s analysis.
Questions About Multifamily Rent Growth And Supply
Multifamily development tends towards areas with population growth like Southeast or Southwest regions where competition leads rents downward while Midwest or Northeast regions see less development resulting stable or higher rents overall at around 2% projected rate through 2024/25 period before supply catches up again after delivery spike tapers off later during late ’25/’26 timeframe when demand picks up among Generation-Z renters who face high homeownership costs making renting more affordable option compared apples-to-oranges comparison between owning vs. renting.
Opportunities in the Market
Zelman suggests that build-to-rent housing could be a good investment opportunity as it offers the experience of single-family living with the convenience of renting. She also sees potential in multifamily investments for their long-term cash flow and stability, but acknowledges that both sectors are challenging due to high land values and labor costs. However, she believes there is room for growth in rental stock which can lead to attractive returns on investment.
To learn more about this topic, you can watch replays of the July 10th Walker Webcast on YouTube, Spotify or Apple channels by subscribing to receive updates on new episodes every week from Connect CRE.
