The asset class is delivering a bond-like return, according to two institutional owners at the GlobeSt.com Multifamily conference this week.

Source: Why Institutional Investors Are Bullish on Multifamily

Source: FHFA Raises Multifamily Loan Purchase Caps for Fannie Mae and Freddie Mac

Source: Chicago property owners are fighting Cook County Assessor ahead of reassessments

Source: Chicago’s multifamily market strengthens, rebounds from pandemic

CoStar’s US Multifamily Analysis Finds Increasing Rent Growth Across the Country

National apartment rents aren’t just recovering — they’re growing at a pace that would equate to the strongest apartment rent gains this century if maintained throughout the year, according to a CoStar Group analysis.

One-bedroom apartment rents have grown by just under 4% since the beginning of the year, according to CoStar. Typically, analysts would expect apartment rents to be up roughly 1.7% through April, making this year’s rent growth more than double the normal seasonal trend, according to the analysis.

“If this rate of outperformance continues, rents will rise by about 9% in 2021 — easily the strongest gains this century,” John Affleck, vice president of market analytics with CoStar Group, said in a video presentation of the data.

Apartment rents in the suburbs and in urban cores are gaining strong momentum after more than a year of uncertainty during the health crisis that squeezed the nation’s multifamily sector, particularly the densely populated downtown areas, the analysis found.

Suburban areas, led by regions outside Phoenix, Salt Lake City, and Atlanta, are posting the strongest gains as more renters bolster the trend jump-started by the pandemic: flocking to cheaper, more spacious multifamily options. “In fact, had COVID never happened, suburban rents would probably be 2 percentage points lower,” Affleck said.

Downtown rent growth is being led by Chicago this year, with rents in the Windy City’s downtown core up almost 10% so far this year, according to CoStar. Rents in downtown Boston, San Francisco, Denver, and Seattle are also growing, after posting some of the worst rent losses in 2020.

Some U.S. cities are still posting weak gains or outright losses this year, including Detroit, Milwaukee, St. Louis, and New York City. But overall, national demand seems to be up as search activity on CoStar’s rental listing website Apartments.com grew even ahead of its surge in April.

“More Americans than ever before are looking for a new apartment, for a host of reasons: to save money or to escape roommates; to prepare for a return to the office or hunker down for permanent work at home; to relocate to a new city or to return home after riding out the pandemic,” Affleck said.

Source: National Apartment Rents on Pace To Post This Century’s Biggest Gains

Home loan interest rates have inched up about half of one percentage point since the beginning of 2021, and analysts say that rise is beginning to squeeze young buyers out of the market.

On April 1, benchmark 30-year fixed mortgage rates averaged 3.18 percent nationwide, up from 3.17 percent a week earlier, reported Freddie Mac’s Primary Mortgage Market Survey.

What is more important, rates have risen 0.53 percent – more than half a percentage point – since setting a modern-day record low of 2.65 percent on January 7, 2021. The rock bottom 2.65 percent benchmark is the lowest rate in the Freddie Mac survey’s history that dates back to 1971. A year ago, lenders were charging an average of 3.33 percent for 30-year fixed loans.

“Although mortgage rates remain low, we are beginning to see a pullback by those looking to enter the housing market,” said Sam Khater, Freddie Mac’s chief economist. “Home buyer demand has gone from 25 percent above pre-COVID levels at the start of the year, when mortgage rates hit record lows, to 8 percent above pre-COVID levels today.”

Khater noted that purchase demand is diminished today as compared with late May and early June of 2020, when mortgage rates were the same level.

“This is confirmation that while purchase demand remains strong, the marginal buyer is feeling the affordability squeeze resulting from the increases in mortgage rates and home prices we’ve experienced in recent months,” said Khater (left).

The Freddie Mac survey is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit.

In 2020, mortgage interest rates set new record lows an amazing 16 times, and thousands of first-time home buyers moved across the threshold into new and existing housing. However, the party may be over for a while.

Analysts said long-term mortgage rates are creeping higher because of rising interest rates on 10-year Treasury notes, which have recently skyrocketed to 1.74 percent from a shockingly low 0.54 percent during the depths of the pandemic.

Optimism about future economic growth, success of the COVID-19 vaccine, and worries about a rise in inflation after the federal government pumped another $1.9 trillion in stimulus funds into the economy also are pushing bond rates higher, experts say.

Light at end of tunnel?

Despite the upward creep in home loan rates, and a shortage of listings, housing experts say there is light at the end of the tunnel.

John Chang, Senior Vice President of Marcus & Millichap, noted that home sales have surged nationwide in recent months, with sales activity in February coming in 9.1 percent higher than in February 2020.

Meanwhile, home prices skyrocketed 16.2 percent year-over-year nationwide to a median price of $334,500, a record high. Chang said sales activity would likely be even greater, but the number of homes for sale on the market has dropped to a record low.

Typically, new-home construction ramps up to meet demand, said Chang (right), but new-home starts tapered last month to about one million units, a figure that represents 55 percent of construction levels during the housing boom of 2006.

Slower housing starts are probably the result of harsh weather conditions in February, and rising material costs, which Marcus & Millichap pegs at 11.4 percent higher than last year. Builders report that rising lumber costs have added $24,000 to the cost of the average new home.

According to Chang, the biggest driver of first-time home sales is the “aging millennial generation.” There are currently 45 million people between the ages of 30 and 40 years in the United States. That’s three million more than five years ago.

The median age of first-time home buyers is 33 years, and over the next five years the number of people in that age group is expected to climb by another two million, forecasts Marcus & Millichap, which is predicting 2.5 million more households being formed each year in 2021 and 2022.

Source: Young buyers squeezed as mortgage rates rise

A recent survey of Gen Z renters conducted by the National Apartment Association in partnership with Statisfacts/Apartment Ratings late last year shows a sharp contrast in preferences compared to other cohorts.

Compared to pre-pandemic millennials who embraced both migration and dense urban cores, more than half of Gen Zers surveyed said they’ll stay put after graduating from college, with 44% saying they prefer a vibrant suburb over city life. And 43% say they want to rent single-family detached properties after graduating.

The Mid-Atlantic and Pacific regions are the top for retention and migration combined among those surveyed. And interestingly, 24% of respondents plan to work in health care after graduating from college, with markets in Arizona, Colorado, Alaska, and Idaho standing out as the most in-demand markets for health care workers.

Gen Z renters also believe that buying a home makes more financial sense than renting, with 58% saying that renting “feels like throwing their money away,” according to a NAA report on the survey’s findings.  Nearly all of those surveyed said homeownership provides a greater degree of control and privacy over renting, and 69% expressed confidence that they’ll be able to afford to own a home at some point in their lives.

Current Gen Z renters value guaranteed parking, Wi-Fi enabled communities and security and access control features above all community amenities, the NAA report notes. Onsite retail, car charging, and business centers were less in-demand.

“Gen Z renters are savvy yet practical consumers who additionally value a functional living space with upgraded features,” the report notes. “The majority of participants said that strong internet speeds, spacious floor plans and premium features such as a washer/dryer, walk-in closets, balconies and hardwood floors are key factors in their decision-making. However, keyless apartment entry, smart-home controls and a dedicated office/workspace are not critical features.”

Gen Z renters are the fastest-growing active segment of the renter market in the US, according to a recent RentCafe study, and they’re flocking to small towns in the heartland. The top trending markets for Gen Z renters included Greenville, N.C. (with a 35% share of Gen Z renters); Little Rock, Ark. (34% share); North Little Rock, Ark. (31% share); Norfolk, Va. (30% share); and Lake Charles, La (33% share). Of the roughly 3 million rental applications RentCafe analyzed, 22% of applicants were born after 1997, and Gen Z renters comprised the second-largest share of the rental market.

“The economic and public health consequences of the COVID-19 pandemic have likely influenced Gen Zer’s preferences for less populated, more affordable cities/towns in Mid-America and outside of the large southern metro areas e.g. Atlanta, D.C., Charlotte, Houston, than millennials,” Ronnie Dunn, Associate Professor of Urban Studies at Cleveland State University, told RentCafé.

Source: Gen Z Renters Are Ditching The City In Favor of ‘Vibrant’ Suburbs

The markets that saw the fastest declines in 2020 are starting to experience the most significant jumps in 2021.

Apartment rents continue to rebound across the country, according to the latest data from Apartment List.

In March, Apartment List’s national index jumped by 1.1%, which was its largest monthly increase going back to the beginning of 2017. That doubled historical growth in the month. In the previous three years, March’s year-over-year rent growth was 0.6%. In addition, the rent growth in March knocks out COVID’s declines in Apartment List’s index.

Recently, Apartment List’s index started growing ahead of seasonal trends. It saw improvement in both pricey coastal markets and smaller cities that have grown popular through the pandemic. The markets that saw the fastest declines in 2020 are starting to experience the most significant jumps in 2021.

While San Francisco is still down 23.2% percent year-over-year, it experienced the largest increase in the country, 3.4%. Rents in the city have now increased by 4.8% over the past two months after falling by an average of 3.4% each month from April through December 2020.

Additionally, Apartment List says that nine of the 10 cities with the sharpest year-over-year declines have had two consecutive months of rising rents. Boston, San Jose, and Washington, DC have experienced rent increases for three consecutive months. Boston grew 2.9% in March, followed by Chicago (2.5%), Seattle (2.2%), New York (0.9%), Washington DC (0.6%).

Even with a rebound in coastal markets, mid-sized markets that have surged during the pandemic continue to hum along. Boise, maybe the poster child for pandemic rent increases, saw prices jump 3.4% this month. Rents are now up by 16.1% year-over-year in the city, which places it in the top spot nationally.

Apartment List says the 10 cities with the fastest year-over-year rent growth all saw prices continue to increase this month. After Boise, Fresno (12%), Greensboro, NC (9%), Gilbert, Az. (9%), Riverside, Calif. (9%), Albuquerque, NM (9%), Tucson, Az. (9%) and Memphis, Tenn. (9%) saw the largest year-over-year rent increases.

Other data sources show some differences. A recent report from Yardi Matrix shows The Inland Empire and Sacramento as the top gainers, with rents up 7.6% and 6.4%, respectively. It shows the markets are also among the top three for occupancy growth year-over-year, with occupancy in the Inland Empire ticking up 2.2% in January and Sacramento showing a 1.2% increase.

Meanwhile, rents in New York, San Jose, and San Francisco remain seriously compressed year-over-year, though their monthly declines have slowed from the summer and fall of 2020. And in cities like Seattle, which showed a 7.7% decline in rent year over year, the struggle continued as tight COVID-19 restrictions dragged on, and tech workers remained decamped elsewhere.

Source: Apartment Rent Index Posts Largest Monthly Increase Since 2017