Multifamily Has 'Ample Leeway' Before Vacancy Rates Approach Pre-Pandemic Levels

Demand for multifamily units settled somewhat in the third quarter as household formation normalized and inflation began to hit consumers’ budgets, following an extended period in which the asset class was riding high.

A new report from Marcus & Millichap rotes that the average effective monthly rent in the U.S. rose nearly 16 percent in 2021, with some Sun Belt markets rising more than 25 percent last year alone. But about 80,000 fewer households were created in the first half of the year, cooling the market as economic headwinds picked up speed.

However, “even with a slower second half, vacancy at midyear leaves ample leeway before rates in most metros approach pre-pandemic levels,” the report notes. Marcus & Millichap researchers say that overall, the outlook for the sector remains positive.

“Despite the 60-basis-point rise in national apartment vacancy during the first half, approximately 20 percent fewer rentals were available at midyear across the U.S. compared to year-end 2019,” they say. “These circumstances and steep barriers to homeownership support sustained momentum in the apartment sector.”

The median price of a single-family home has also skyrocketed by more than 30 percent over the past two years, and mortgage rates have hits levels many consumers have never seen in their adult lives. with the median price of a single-family. And ”this is swelling the affordability gap, or the difference between an average monthly payment on a median priced home and an average rent obligation,” the firm says: the margin now exceeds $1,000 per month, about three times the magnitude of pre-pandemic norms.

“The cost-saving benefits, coupled with lifestyle elements, locational advantages and flexibility, will sustain apartment demand,” the report states.