Commercial Lending Report
Even with uncertain economic indicators and slow hiring, rental housing demands are increasing. Conditions remain favorable for multifamily markets across the nation. The demographic trends indicate high levels of immigration, the surge in echo boomers forming their own households, a further shift away from homeownership, and the growing diversity in household composition support continued demand for rental housing.
Rents are Increasing as Vacancy Rates Decrease
The report also indicates that as the national vacancy rate dipped to a decade low, rent growth and inflation continued to outpace income growth.
Effective rents across most markets are higher than recent years. The report shows a decline in discretionary income. The U.S. has posted cumulative effective rent growth of 6.9 percent annually. In fact, half of the major U.S. metro markets increased rents by 3.0 percent or more. In comparison, the compounded annual growth rate for hourly wages over the past year has been 1.9 percent, eroded by a 2.3 percent inflation rate.
Not all markets can endure rental increases without job creation. The M & M report states, “…employment gains historically exhibit a stronger correlation to rent growth than to net absorption, so a weaker pace of job growth implies temporary near-term moderation in the magnitude of rent increases.”
Good News for Construction
Construction markets are making up for unavailable funding in the past few years.
The low cost of funds and ample liquidity for apartment development has ignited a new construction cycle. Last year’s record-low completions totaled less than 40,000 units.
The forecast for supply in 2012 calls for 85,000 units, of which less than 15 percent was delivered in the first quarter. According to M&M, San Jose, New York and Washington, D.C., are the markets to watch, with new supply to inventory ratios running well above their long-term averages. These three markets, however, have expensive housing costs that create a large base of renter households and the lowest vacancy rates in the country at 2.7, 1.8 and 3.9 percent, respectively.
Fannie Mae Multifamily Report
Multifamily Construction Improving
The September 2012 market commentary from Fannie Mae indicates that the multifamily construction market is improving and will continue to improve over the next few years. The report shows normalized annual rates of approximately 245,000 units in 2012 and 2013, still lower than historical averages.
The report states that a potential oversupply occurring in late 2013 into 2014 may be limited to a small number of submarkets. Moreover, the market supply may not keep up with demand because of obsolescence, anticipated changes in rental markets due to meeting current low inventory demands.
The current project pipeline of approximately 118,000 units is expected to be completed by the end of 2012. There are approximately 128,000 apartment units planned for 2013. This number is likely to change with current lending trends.
Commercial Lending Report
Commercial Construction Lenders
TOP 10 Funding represents private lenders with several new programs to meet the needs of the construction crisis. We also work with community banks across the country to provide loans for purchase and refinance of apartment buildings and complexes.
More private lenders are realizing the crisis in the market and the need to provide construction funding for multifamily projects, commercial office buildings, hotels, and retail shopping centers in major markets.
Additional information on the good news about the multifamily market can be found on the MHN Online website.