Cooling Single-Family Housing Market 'Detrimental' to Apartment Industry

A cooling in the single-family home market could be detrimental to the health of the multifamily sector, according to the Integra Realty Resources (IRR) Mid-Year Commercial Real Estate Report issued this week.

While IRR reports that multifamily assets traded at record highs as most U.S. residential markets rocketed through Q1, single-family home volume and values “will surely affect forward rental rate forecasts negatively,” the firm said.

Urban Markets to See Return to Balance

Anthony M. Graziano, CEO of Integra Realty Resources, tells GlobeSt.com that IRR’s forecast of slower multifamily rental growth due to the cooling single-family market relates to a supply and demand overall in housing.

“Many renters will be faced with large rental increases on ever higher-priced Class A multifamily units, but slackening in the single-family market will lead to more single-family rentals and will also lead to renters heading back out into a cooling/more competitive single-family market where rent to home price ratios will fall back in line,” Graziano said.

“This may not be universal in all markets, but many urban markets with limited condo inventory and/or single-family inventory will start to see a return to balance where housing prices decline by 10% to 12% while apartment rents are escalating by 10% to 15%.

“The principle of economic equilibrium will stabilize (reduce) multi-family rent-seeking.”

Dealmaking Slowed in Q2

Graziano said that second-quarter dealmaking slowed.

“While the performance of different asset classes varies depending on supply and demand dynamics in each local market, overall, we expect the back half of 2022 and most of 2023 to be turbulent,” he said.

He said in prepared remarks that a reset on real estate values is a necessary component of managing inflation because occupancy costs affect consumer spending and the production costs of goods and services.

“In other words, the quicker we take our medicine, the quicker we can return to stability,” according to Graziano.

Agoura Hills Trades Largest Apt Community in a Decade

IRR said it’s seeing continued cap rate contraction. Urban Class-A cap rates are 4.73 percent (down 17 bps), urban Class-B cap rates are 5.41 percent (down 20 bps), suburban Class-A cap rates are 4.87 percent (down 21 bps), and suburban Class-B cap rates are 5.48 percent (down 25 bps).

In a sign that prices remain rich, Intercontinental Real Estate Corporation and MG Properties acquired the 178-unit apartment community, The Lexington, in Agoura Hills, Calif., for $87.3 Million.

Lexington Apartments is the largest multifamily community in Agoura Hills to trade in the past decade.

The community built in 1986 includes one- and two-bedroom apartment homes housed in 11 two-story residential buildings on a 15-acre-site at 30856 Agoura Road.

Agoura Hills is central to the Conejo Valley, an affluent region 35 miles west of Downtown Los Angeles and encompassing northwest Los Angeles County and southeast Ventura County.