2023 Multifamily Outlook
2023 Multifamily Outlook
The multifamily real estate market outlook for 2023 is generally positive, with a number of trends expected to continue in favor of multifamily property performance over the next year.
High Interest Rates
As the Federal Reserve continues to hike up interest rates to combat inflation, we’re seeing multifamily reap some unexpected rewards. Because the interest rates on mortgage loans are increasing and it’s becoming more expensive to receive funding for a home purchase, many buyers are choosing to hold off. As potential buyers choose not to go through with their real estate transactions or wait until the market stabilizes, people are renting for longer. Multifamily vacancies are expected to stay low even as rent prices continue to increase. The Fed’s key benchmark borrowing rate is projected to rise another three quarters of a percentage point in 2023, hitting a 17-year high of 5-5.25 percent from its current 4.25-4.5 percent level, according to the Fed’s median projection from December. High interest rates and expensive housing prices for single-family homes will likely continue giving the multifamily market a boost throughout 2023.?
Increasing Demand for Rental Units
One major trend in the multifamily market is the increasing demand for rental properties, particularly among young professionals. The COVID-19 pandemic has led to a shift in attitudes toward homeownership, with many people opting to rent instead of buy due to economic uncertainty and a desire for more flexibility. Realtor.com economists also predict, however, that rents nationwide will increase by 6.3%, while they expect median home prices to grow by 5.4%. This trend is expected to continue in 2023, with a growing number of people seeking out rental properties as a result of the increase in interest rate creating a decrease in affordability for home buyers.
Affordability
Another trend in the multifamily market is the increasing demand for smaller, more affordable units. The high cost of homeownership, coupled with the trend towards urbanization and a desire for a more walkable, amenity-rich lifestyle, has led to a growing demand for smaller, more efficiently designed units. This trend is expected to continue in 2023, with developers focusing on building smaller, more affordable units in order to meet the demand of renters.
Expected Interest Rate Decrease
Finally, the multifamily market is expected to continue to benefit from low interest rates in 2023. Low interest rates make it easier for developers to secure financing for new projects, which will likely lead to an increase in acquisitions and new construction in the multifamily market. When the residential market factors begin to normalize, it could be a sign that the multifamily market will also begin to rebalance — which could look like a drop in performance. However, this will also incentivize investors and developers to invest in and build more multifamily properties.?
2023 Multifamily Outlook
Overall, the multifamily real estate market outlook for 2023 is generally positive, with strong demand for rental properties, a focus on smaller, more affordable units, and low interest rates helping to support growth in the sector.