McLEAN, VA—The multifamily asset class has been riding high for years but increasingly in some quarters this particularly glass is looking half empty. Sooner or later, it is thought, the robust pipeline will over take demand. The other side of this argument has been that demand will continue to meet and exceed whatever the supply side can throw at it. New figures from Freddie Mac give credence to the optimists. It notes that construction of apartment buildings has hit the highest monthly pace since the beginning of 2006. Absorption rates, though, are matching that pace.

The latest absorption rates for unsubsidized, unfurnished newly built apartments have been at the fastest pace in a decade: The Census Bureau reported that the latest 3-month and 6-month absorption rates had risen to 64% and 83%, respectively. In short, demand exists to absorb the new supply.

Currently "one out of three residents in the US is a renter," says Frank Nothaft, Freddie Mac vice president and chief economist, in a video presentation on this month's housing outlook.

Demographic trends are also encouraging the multifamily market—namely Millennials want to live in an urban setting and retain locational flexibility, he also said.

Unfortunately for them, "if they're looking to live in the larger cities, that's where rents are rising the fastest, especially in the West or Northeast regions of the United States, places like Los Angeles and New York City. In the South region, areas like Miami and the Washington-Baltimore metro have seen real rents exceed the US average. But in the Midwest, only the Chicago metro area has outstripped the U.S. average."

Freddie Mac also noted that the increased number of tenant households has pushed vacancy rates down to the lowest level since 2000, and on average, inflation-adjusted rents in the US have returned to their prior peak levels of 14 years ago.

Instant Insights /

Freddie Mac: MF Construction is Fast, But Demand is Faster

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