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Inflation fears, rising interest rates, and a cooling housing market have clouded Freddie Mac’s 2023 multi-family home market outlook.
The mortgage aggregator expects the multifamily sector to slow further in 2023 due to moderate rental growth, higher vacancy, and lower lending for the year. Freddie Mac also expects home values to fall, but gross income growth will remain positive.
Steve Guggenmos, vice president of research and modeling at Freddie Mac Multifamily, said capital market volatility and a rise in the 10-year Treasury rate led to a decline in multifamily lending in 2022 that will continue into 2023.
Economic uncertainty and rising prices have led to lower demand for housing. This, combined with rising construction levels, will encourage rent growth to stabilize and eventually normalize.
This environment puts downward pressure on real estate values, which have grown at a faster pace in recent years.
According to Freddie’s report, by 2022 annual rental growth is expected to be around 6-8% and gross income will increase by 3.5%. While multi-family fundamentals remain strong, the vacancy rate is expected to increase slightly to 5.1%.
Freddie Mac wrote in the report that multi-family home construction levels remain extremely high, which could put further pressure on fundamentals in some markets.
In 2023, Freddie Mac expects the best-performing markets to be primarily smaller in the Southwest and Florida.
The underperforming markets are a geographically diverse mix of small and large markets, many of which are expected to have high levels of new supply.
Additionally, Freddie Mac expects year-end issuance to fall 5.5% to $460 billion, translating into another 4% to 5% decline to $440 billion in an environment of economic uncertainty and interest rate volatility that will continue into 2023.
However, fundamentals are expected to slowly recover in the second half of the year as the market stabilizes.
Reference Source: MPA
