On the surface of it all, there’s good news to be had in this prolonged economic downturn. The national unemployment rate continues to drop, to 7.9 percent in September compared to August’s 8.4 percent. And, according to the Wall Street Journal, both NASDAQ and the S&P show 52-week gains (48.85 percent and 16.79 percent respectively).
But how that translates into the multifamily market is a little less clear, as we can see when we put two recently released surveys together, both of which spotlight a sector whose fortunes--though more solid than many of its counterpart food groups--still remains mixed. On one hand, multifamily fundamentals remain relatively strong compared to office or retail, according to a recently released report from NREI and AppFolio. (The report was the result of an online survey of NREI readers and garnered 237 responses from company leaders.)
“According to Moody’s Analytics REIS, apartment vacancies remained unchanged in the second quarter at a relatively tight 4.8 percent, while effective rents declined by only 0.4 percent,” states the report.
The bulk of survey respondents (82 percent) said that at least a portion of multifamily residents had requested rent relief. “Among respondents who had received rent relief requests, 87 percent had granted at least some level of relief,” it states.
Nevertheless, the study found that, through whatever means, most renters were keeping up with their payments: “Survey results show a mean 88 percent of rents were collected from April through June, with respondents forecasting they will collect 89 percent of rents from July through December.”
The report compares these figures with those released by the National Multifamily Housing Council, which had previously reported that owners “collected between 94.6 percent and 95.7 percent of rents” for the bulk of Q2. “For the most recent month, NMHC’s tracker showed that 90.0 percent of rents had been collected as of August 20.”
That flies in the face of data released by online home broker Clever, which conducted an online survey of some 1500 adults. According to the results, some 72 percent of renters are living paycheck to paycheck, and 33 percent report missing or deferring rental payments since March. It should be noted that, by comparison, a relatively low 19 percent of homeowners said they missed or deferred mortgage payments.
Meanwhile, rents rose some 25 percent since Q2 of 2014, says Clever, while inflation-adjusted income jumped only 19 percent in that same time period.
Whether that trend of rising rents will continue is similarly cloudy, even among the experts. The NREI/AppFolio study reveals that only 45 percent of respondents see rents rising in the next year, those who disagree aren’t far behind; 40 percent think they’ll fall. Fifteen percent expect no change. In past surveys upward of 66 percent typically predicted a rise in rents.
The big question, of course, is “What Now?”, and the answer revolves around two words: Stimulus and vaccine. “Although REIS is predicting that the multifamily sector will see less distress than other income-producing property types,” says the NREI/AppFolio report, “it does have a negative forecast ahead that calls for vacancies to rise to the mid-6 percent range later.”
At the same time, the report reminds us that “the pandemic is the recession,” that the economy pre-COVID was still running at record highs, the implication being of a post-coronavirus return to economic health. That said, the report ends on an up-note: “Despite some of the near-term uncertainty, multifamily developers and investors appear to be looking beyond COVID-19 to the longer-term demand drivers for rental housing.”