Last month Freddie Mac released projections for multifamily originations that painted an optimistic picture of the market's resilience. Despite facing the highest levels of new supply since the 1980s, the agency described vacancy rates as "relatively constant" and rent growth as "modest," while characterizing demand as "exceptional."
Looking ahead to 2025, Freddie Mac anticipated a mixed landscape. It projected positive rent growth, albeit below long-term averages, with vacancy rates expected to inch upward. The forecast also included flattening cap rates, persistently elevated and volatile interest rates, negative pressure on property values, and subdued property performance. Despite these challenges, Freddie Mac's outlook remained bullish, projecting 2024 originations to close at $320 billion, with 2025 reaching between $370 billion and $380 billion.
As the multifamily sector navigates through 2025 and beyond, factors such as housing affordability, interest rates, and shifting market fundamentals will play crucial roles in shaping the landscape of multifamily originations. While Freddie Mac's outlook suggests resilience and growth, the reality may prove to be more nuanced as the market continues to evolve in response to these multifaceted challenges.
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For instance, Trepp noted that the 10-year Treasury yield had decreased from 4.45% in 2023 to 4.28% in Q4 2024, marking a significant shift from the historical lows seen in 2021, when yields ranged from 1.34% to 1.53%, and the volatile period of 2022, which saw yields between 1.95% and 3.83%. While cap rates typically rise with interest rates, Freddie Mac's projected increase in originations stems primarily from a lack of affordable homes, which maintains a robust pool of apartment renters.
Trepp also highlighted the cost advantage of renting, noting that in Q3 2024, the monthly cost to finance a home stood at $1,954, while the average monthly rental rate for a multifamily unit was $1,841. This price difference, coupled with the absence of a down payment requirement, makes renting an attractive option for many potential homebuyers.
These dynamics are complicated by a legacy of low-interest loans, though. Approximately $692 billion of outstanding debt originated during the "super-low interest rate period" from 2020 to 2022, with rates often below 4%. Today's market conditions differ significantly from this era.
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