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Freddie Mac: It will be another banner year in multifamily

Low rates will spur investments, drive up originations

It looks like the multifamily sector is set to have another strong year thanks to a combination of factors that will fuel demand for rental housing.

According to Freddie Mac’s midyear outlook, 2019 will see a robust rental market as the nation’s housing shortage, a strong labor market and low interest rates create a potent recipe for multifamily growth.

While the multifamily sector’s performance had a slow first quarter, activity was solid in the second quarter of 2019 and, according to Freddie, the “fundamentals are expected to remain strong throughout the rest of the year.”

That said, the vacancy rate will continue to climb slowly, keeping rent growth at around 4% for the year, Freddie predicted.

Meanwhile, housing supply continues to lag demand, even though multifamily construction is “churning at elevated levels,” Freddie said, with the building of five-plus-unit developments on pace to exceed the number built in the last few years.

In all, this bodes well for multifamily lending.

“Multifamily originations are expected to set another record year in 2019 due to strong fundamentals, continued demand for multifamily investments and low interest rates,” Freddie’s report stated. “Our expectations are for total origination volume in 2018 to rise by 9.1% to $311 billion.”

Steve Guggenmos, who heads Freddie Mac Multifamily’s research and modeling team, said things are looking good for the multifamily sector in the year ahead.

“A strong labor market and a persistent housing shortage have continued to fuel a robust rental market,” said Guggenmos. “As of June, multifamily completions outpaced the prior two years, but demand remains high in the majority of markets allowing them to absorb most of the new supply.”

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