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Apartment Slowdown Has Yet to Arrive

Apartment Slowdown Has Yet to Arrive Multifamily Executive (08/04/17)

The predicted apartment slowdown still has yet to impact the market, states Ten-X Commercial's latest US Multifamily Outlook. However, some aspects of the market are faltering. For one, apartment vacancies nationwide climbed 10 basis points during the first three months of this year to 4.3 percent, after remaining flat over the last year. Approximately 330,000 new rental units will be added to the inventory by the end of December, which will have a negative impact on vacancies as the absorption rate lags the influx of new supply. In the meantime, demographic trends continue to prop up the multifamily market, according to Ten-X data. Household formations stayed steady at around 1.6 million in 2016. Meanwhile, a solid employment market continues to fuel absorption, with debt-ridden Millennials increasingly delaying marriage and homeownership in favor of renting.

Ten-X researchers add that as employment and wages continue to increase among younger adults, the 31 percent of 18- to- 34-year-olds still living with their moms and dads should be drawn into the market. This, in turn, will give rise to a key demand source that has yet to be fully tapped. "The current state of the multifamily sector is a perfect example of the time-honored notion that 'demographics is destiny,'" remarks Peter Muoio, chief economist with Ten-X. "While softening fundamentals indicate that the sector is poised for a slowdown, that shift has yet to arrive in earnest." Even as many major metropolitan areas are increasingly exposed to both cyclical risk and massive oversupply, the overall market is being sustained by significant societal shifts that are driving solid, sustained demand. Muoio concludes, "As long as gainfully employed Millennials and other Americans continue to choose renting over homeownership, a majority of multifamily investors can be confident that rents will continue to rise."