Today’s dynamic real estate market is making it the perfect time to buy. Investors are seeing opportunities in the multifamily sector because of its strong fundamentals and structural tailwinds. The U.S. Census Bureau reports that more than one in five Americans will be 65 years or older by 2030, as well as a growing number of Millennials and Gen Xers renting versus owning homes.
These demographic trends are likely to drive demand for rental housing over the next decade. Why invest in multifamily real estate? Its long-term fundamentals remain positive. Rents continue to rise while new supply is limited, leading to an increased demand for properties with more units or bedrooms. In addition, property values have remained relatively stable or even experienced increases during this period of high-interest rates and inflation jitters — plus, there’s no better time than when you can get something at a discount or below replacement cost!
1. Jitters in the Housing Market
There is a lot of uncertainty in the real estate market right now — especially with the Federal Reserve raising interest rates. Investors are watching the 10-year Treasury yield and housing market closely.
A weak housing market could be bad news for the multifamily market, too. However, the market has been slow but steady since the Financial Crisis, which is likely to continue since the fundamentals are strong. The homeownership rate is at its lowest since 1965, as well as the share of household income spent on interest and principal payments. The homeownership rate is expected to remain low, which is good news for investors and multifamily.
The Millennial generation is largely responsible for this. Millennials currently comprise about 40% of the U.S. population, and about 31% of employed Millennials are living in the rental market. This represents a significant increase from the 26% of employed Millennials who rented from 2005 to 2007.
2. Core fundamentals remain strong
The multifamily sector has been growing for several years now and shows no signs of slowing down. In fact, the U.S. Census Bureau reports that multifamily units accounted for 35% of all new construction starts in the past year — almost three times the rate of single-family construction starts.
The total number of apartments has remained relatively steady since 2005. Part of this is because the number of homeowners has remained flat despite an increasing population. The number of households has grown steadily due to population growth, while the number of occupied housing units has remained relatively low. Investors see this as a positive sign.
3. Gen Y and Millennials are joining the workforce
The U.S. Census Bureau reports that the average age of first-time homebuyers is currently 36, which is the oldest it has ever been. Meanwhile, the number of first-time homebuyers under the age of 35 has fallen to just 26%. The Millennial generation is the largest and most diverse generation in history — there are approximately 75 million people in this generation, and they make up about 38% of the US population.
Moreover, they are now the largest demographic in the US workforce, which means they have the means and desire to rent rather than own. Rising interest rates are making it more expensive for Millennials and Gen Y to get a mortgage. This is forcing many to rent even longer.
4. Baby Boomers are aging but still have equity
Baby Boomers are typically defined as individuals born between 1946 and 1964. They have been the primary owners of multifamily real estate for the past few decades, but many now have equity from those properties and are looking to sell. Many of them are retiring and have liquidated equity in their homes to purchase their dream retirement spots. Multifamily investors can benefit from this by purchasing these properties with cash or with financing below the market rate. It is a great time to get into the market as you can buy below replacement cost.
5. Conclusion
Investors are seeing opportunities in the multifamily sector because of its strong fundamentals and structural tailwinds. The U.S. Census Bureau reports that more than one in five Americans will be 65 years or older by 2030, as well as a growing number of Millennials and Gen Xers renting versus owning homes. These demographic trends are likely to drive demand for rental housing over the next decade.
The multifamily sector has been growing for several years now and shows no signs of slowing down. In fact, the U.S. Census Bureau reports that multifamily units accounted for 35% of all new construction starts in the past year — almost three times the rate of single-family construction starts. The demand for rental housing remains strong, and there are still plenty of investors looking to buy multifamily properties. Interest rates have been rising, which is making it more expensive for Millennials and Gen Xers to get a mortgage.
This is driving many to rent for even longer. Meanwhile, Baby Boomers are aging and have equity in their homes, which is making it easier for investors to get financing below market rate for multifamily properties. The time is now to get into the multifamily investment market.