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The State of the Multifamily Market

Demand for Multifamily Market Remains High

Sam Khater    |    Housing Trends, Mortgage Performance

Last week, I attended the National Multifamily Council’s Apartment Strategies Conference and was struck by the differences between hot single-family and multifamily markets. The strongest single-family markets – as evidenced by price increases – are primarily in California and include Stockton, Riverside, Oakland and Sacramento, as well as Las Vegas. The recoveries in these five markets have certainly not been driven by fundamentals, such as job and demographic growth, as they have averaged 1.5 percent employment growth over the last year compared to the slightly higher national growth rate of 1.6 percent[1]. Instead, the recovery in many of the hot single-family markets has been driven by an influx of cash sales, investor activity and tight inventories, which have helped boost the price recovery in these and in other markets.

On the other hand, the strongest multifamily markets have been driven by traditional fundamentals. Panelists at the conference singled out San Francisco, San Jose, Calif., Denver, Austin, Texas, Seattle, Wash., Dallas, Texas and Houston, Texas as the most currently robust multifamily markets. Combined, these markets have an employment base growing by 2.6 percent, a full percentage point faster than the U.S. rate – a very wide gap. Moreover, these markets also have strong demographic growth, driven in part by the job market, especially in technology and oil, which has attracted in-migration from other states and internationally. The conference consensus was that the current multifamily cycle will outlast prior average cycles given that the multifamily market under-built during the boom in the mid-2000s, but still had large declines during the bust.

Analysis of our CoreLogic SafeRent multifamily rental tenant screening statistics reveals new multifamily applicants are enduring lingering pressures from the recession which will continue to keep demand firm for multifamily housing. The tenant screening data shows that over the last few years, new renter applicants have had higher levels of student debt, higher incidences of mortgage history and higher shares of thin or no credit files. In 2008, the share of applicants with student debt was 25 percent, but as of last fall it was 50 percent and stabilizing. Applicants with a mortgage history made up about 15 percent of the total in 2008, but they increased to about 25 percent in 2011 and have been steady since. The share of rental applications with thin or no credit files was 23 percent in 2007 and 2008, but by 2013 it had grown to slightly under 30 percent[2]. Clearly, the lingering effects of the recession are still being felt by multifamily renters and, given the tepid overall recovery in jobs and incomes, will undoubtedly keep demand for multifamily housing very high for an extended period of time.

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[1] A two-month moving average of employment growth rates.
[2] A thin file applicant has 3 or fewer trade lines in the credit bureau report of his rental application.