Amid the conflicting narratives of 2023, many investors are left wondering what’s next for multifamily real estate. Rising interest rates, construction slowdowns, and market volatility have created an uncertain picture. However, the data tells a different story — one of resilience and opportunity. Let’s take a precise look at the trends from 2023 and what they mean for multifamily investing in the year ahead.
MULTIFAMILY REAL ESTATE IN 2023
The nationwide housing shortage, exceeding 3.8 million units, remains a critical issue. Since 2008, this deficit has persisted and is projected to worsen, with estimates suggesting a shortfall of 6.5 million homes by 2030. Rising interest rates further complicate the problem, with each 1% increase pricing 5 million Americans out of homeownership.
New construction has struggled to keep pace, with permits and unit starts down 31.6% and 31.5%, respectively, according to RealPage. Meanwhile, many homeowners with low, locked-in interest rates from the pandemic are choosing to stay put, exacerbating the shortage.
For many, renting remains the more cost-effective option. Renting is currently $700 less per month than homeownership, according to Newmark Research. This affordability gap, paired with tight housing supply, has driven strong rental demand. Rising interest rates, while challenging for financing, have prolonged rental tenures, bolstering the multifamily sector.
Despite economic headwinds, rental rates remain stable. Although growth has moderated following a post-pandemic surge, over ten markets still saw rental growth exceeding 20% in 2023, according to CoStar. At Countrywide, we take a conservative approach, capping rental growth assumptions at 3% — significantly lower than historical trends and our portfolio’s recent 11% performance — ensuring sustainable investments.
Source: Newmark Research, Federal Reserve Bank of Atlanta, RealPage
2024 MARKET OUTLOOK
Interest Rates:
While high rates have been a hurdle, relief is on the horizon. Economists, including Doug Duncan of Fannie Mae, anticipate a 0.5% to 1% decline in interest rates by late 2024, offering developers and investors some breathing room. While rates will remain elevated, their gradual decline should renew optimism and activity in the multifamily sector.
Construction Trends:
Construction starts, which declined 8.4% in 2023, are expected to stabilize, with only a 5% reduction projected in 2024. Furthermore, construction costs are easing due to a surplus of materials, creating favorable conditions for developers. Contractors are already reporting reduced costs for materials like windows, appliances, and doors. At Countrywide, we leverage bulk purchasing power to secure substantial discounts, passing these savings directly to investors.
Demand for Rentals:
Rental demand remains strong, supported by affordability challenges in homeownership and a growing population of renters by necessity. Coupled with limited housing supply, the multifamily sector is positioned for continued growth.
Source: CoStar
WHY INVEST IN MULTIFAMILY WITH COUNTRYWIDE IN 2025?
- Stable Demand:
The enduring need for rental housing ensures high occupancy rates and steady rental income, even during economic uncertainty. - Cost Advantage:
Easing construction costs and strategic supplier negotiations reduce project expenses, enhancing investor returns. - Market Timing:
Projects funded now will open as interest rates ease and institutional investment activity resumes, positioning investors for long-term success.
A PARTNER YOU CAN TRUST
At Countrywide, our targeted, data-driven strategy allows us to capitalize on market fundamentals and deliver exceptional value. By staying ahead of trends and maintaining a conservative approach to growth, we continue to create sustainable opportunities for our investors.
As we enter 2025, don’t let uncertainty hold you back. Contact our team to learn how multifamily investments can secure your financial future. Visit our website to explore current opportunities and make your cash work smarter in the year ahead.
Sources: CoStar, Fannie Mae, Newmark Research, Federal Reserve Bank of Atlanta, RealPage
