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National Multifamily Index (NMI)

• Minneapolis-St. Paul climbed two spots to head this year’s Index. It is the only Midwest market to break into the top 20. San Diego also inched
up two notches on solid rent growth to claim second place.
• Neighboring Florida metros Orlando (#6) and Tampa-St. Petersburg (#12) registered the largest advances in this year’s NMI, leaping 11 and
nine places, respectively.

 

National Economy

• Accelerated job creation in 2018 drove the unemployment rate of young adults between 20 to 34 years old to a 48-year low of 4.5 percent. With
two-thirds of this age group living in rentals, they are a dominant force supporting apartment demand, and the strong job market has empowered more of them to move out on their own.
• The monthly payment on a median-priced home increased by $175 last year to nearly $1,700 per month, dramatically widening the disparity
between a mortgage payment and the average monthly rent. This widening payment gap, together with tighter underwriting, has restrained
young adults’ migration into homeownership, reducing the under-age 35 homeownership rate to 37 percent, down from the peak of 43 percent
in 2007. This confluence of factors will likely carry into 2019, sustaining young adults’ preference for rental housing.
• Though consumption and corporate investment will support economic growth in 2019, trade imbalances and a likely weaker housing market will
weigh on momentum. Job creation, facing an ultra-tight labor market, will dip to the 2 million range, but wage growth should push above 3 percent.

 

National Apartment Overview

• As new households are formed next year, much of the rental demand will center on apartments that serve the traditional workforce: Class B and
C properties.
• New inventory largely caters to more a§uent renters. As a result, Class A vacancy is expected to rise to 5.8 percent while Class B apartment vacancy remains relatively stable at 4.7 percent. The most a¨ordable segment of the market, Class C apartments, faces strong demand and vacancy
for these rentals is expected to tighten to 3.9 percent, its lowest year-end level in 19 years.
• While primary markets such as Boston, Los Angeles, the Bay Area and New York City are expected to see the largest dollar rent increases, smaller metros are generating faster increases on a percentage basis. Metros across the Southeast and Midwest in particular are generating outsize
employment growth and housing demand.

 

Capital Markets

• Upward pressure on short-term yields has increased concern an inverted yield curve could occur. A potential inverted yield curve will weigh on
confidence levels and could possibly erode consumption and stall the growth cycle. The typical onset time of a recession following an inversion
is about one year, but there have been two false positives in which a recession did not follow an inversion.
• Most lenders, particularly Fannie Mae and Freddie Mac, have adapted to a more fluid financial climate. When Treasury rates increased in the
third quarter, many lenders tightened their spreads to cushion volatility. Lenders remain cautious, adopting tighter underwriting standards but
aggressively competing to place capital into apartment assets.

 

Investment Outlook

• Strong demand drivers supporting long-term yield models will counterbalance much of today’s market volatility, encouraging investors to look beyond
any short-term turbulence.

• As multifamily yields have compressed, the increasing portion of mobile capital acquiring assets priced over $15 million has migrated to secondary and tertiary markets.

 

 

Pricing and Valuation Trends Summary

Ten-year appreciation favors high-growth markets. Benchmarked from
the end of 2008 as the U.S. economy began its rapid tumble into recession, appreciation has generally been strongest in tech, growth and Texas
markets. Because Texas experienced a much softer downturn, assets
there had to recover less lost value during the growth cycle. Interestingly, markets like Denver, Nashville, Orlando and Baltimore generated
stronger-than-average value gains that reflect substantive economic and
employment growth. Several Midwestern markets, which were trading at
cycle highs in late 2008, faced significant value loss during the recession
and only recently surpassed their prices of 10 years ago.

Capital pursues yield to smaller metros.

Although Midwestern markets have taken longer to generate appreciation relative to the near-peak pricing achieved in late 2008, they have offered investors particularly
high yields. Comparatively, the Bay Area and Seattle provide low yields
but have higher-than-average appreciation. The most favored primary
markets, New York City, Southern California and Washington, D.C., have
generated lower-than-average appreciation over the last 10 years. This
reflects the flight to safety in late 2008 that kept pricing in these markets
stronger than many others.

 

 

 

Average Price per Unit Range

(Alphabetical order within each segment)

$50,000 –$74,999

Cincinnati, Cleveland, Columbus, Detroit, Indianapolis, St Louis

 

$75,000 –$99,999

Kansas City, Las Vegas, Louisville, Milwaukee, Pittsburgh

 

$100,000 –$149,999 –   

Atlanta, Austin, Baltimore, Charlotte, Dallas/
Fort Worth, Houston, Minneapolis-St. Paul, Nashville, Phoenix, Raleigh, Riverside/San Bernardino, Sacramento, Salt Lake City, San Antonio, Tampa/St. Petersburg

 

$150,000 –$199,999 –

Chicago, Denver, Fort Lauderdale, Miami-Dade, N. H.-Fairfield County, Northern New Jersey, Orlando, Philadelphia, Portland, Washington, D.C., West Palm Beach

 

$200,000 – $299,999 –

Los Angeles, New York City, Oakland, San Diego, Seattle/Tacoma

  $300,000 +

Boston, Orange County, San Francisco, San Jose

 

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