DALLAS—Existing home sales reached an eight-month high last month, and a recent GlobeSt.com article raised anew the question of whether new supply is overtaking demand in the multifamily sector. However, four new reports, including one from Dallas-based Axiometrics, indicate that apartments’ reign is far from done.
Axiometrics reported on Tuesday that June’s concession rate of 0.78% was the lowest in at least five years, annualized effective rent growth of 3.6% was the highest since December 2012 and occupancy remained above 95% for the second month in a row. “In April, 2014 year-to-date effective rent growth just edged 2011 and 2012 to position itself as the strongest year of the recovery,” says Jay Denton, VP of research at Axiometrics. “The apartment market’s performance in the past two months has widened the gap.”
Annualized national effective rent growth increased 10 basis points in June to 3.6%, compared to 3.5% in May, according to Axiometrics. June marked the fourth straight month that effective rent growth increased, as well as the fourth consecutive month in which the rate was 3.1% or above. The rate was the highest since January 2013, when it was 1/100th of a percentage point ahead of where it was in June.
A Freddie Mac report on the outlook for economic and residential growth concludes with “a cautiously optimistic view for economic growth in the next few years.” However, with the exception of multifamily rentals, “the housing sector remains well below potential and will likely persist in that state for a couple of years, but continue to doggedly improve. That means construction, new home sales, and purchase mortgage originations will likely continue to increase year-over-year for the next few years, but remain below their long-run sustainable levels during that time.”
For single-family mortgage originations, “the recovery in the purchase market will not offset the decline in refinance volume, particularly when rates resume their upward trend,” according to Freddie. “Good news in the labor market will translate into a rise in household formations. The immediate impact of increased household formations will be felt in the rental market, but eventually over the next few years will lead to more single-family home sales.” All in all, according to Freddie’s report, “the odds of recession are low, but the odds of below potential growth for single-family housing remain high.”
According to Zillow, home values in half of the nation’s 100 largest metro areas will not reach their pre-recession peak levels again for another three-plus years. Nationally, home values remain 11.3% below their 2007 peak, according to data from Seattle-based Zillow.
Longer term, home values are expected to rise another 4.2% through the second quarter of 2015, according to the Zillow Home Value Forecast. “It will take 2.7 years for national home values to re-achieve their pre-recession levels, assuming a steady rate of appreciation at the forecasted level,” the firm states.
Fitch Ratings similarly expects US housing—including both single-family and multifamily—to see stronger growth for the second half of this year. Demographics, attractive affordability and a steady easing of credit standards should sustain and ultimately accelerate an upturn for housing following a subpar start to 2014, the New York City-based ratings agency says.
That being said, “The spring selling season was underwhelming enough that this, along with more guarded expectations for the next few months, will lead to more modest growth for macro housing statistics before the year is through,”’ says Robert Curran, managing director and lead homebuilding analyst with Fitch. The agency now projects single-family starts to improve 9.5% to 677,000 as multifamily volume grows almost 12% to 343,000 by year’s end.