Multifamily Real Estate continues to show solid fundamentals. With sustained demand, favorable demographic trends and a housing market that is still inaccessible for purchase, a favorable context for investment is presented.
After Donald Trump’s victory In the United States presidential elections, the Federal Reserve (FED) implemented a second consecutive rate cuttaking them to a range of 4.5% – 4.75%. This movement has profound implications for the financial environment and invites us to reflect on the direction that investments could take in the near future. The move has eased expectations of further monetary tightness and provided a boost to investment and consumption.
In this scenario, the economic outlook for the United States is optimistic, supported by concrete data that indicates a solid recovery. In October, the unemployment rate remained at 4.1%, confirming a positive trend in the labor market. The previous month, this figure had reached that level after the creation of 254,000 new jobs, exceeding expectations. The current “soft landing” conditions are sustained and suggest an environment of stability, where moderate growth in employment and inflation is expected, thus allowing healthy development of the economy without significant risks. The FED’s projections for next year anticipate a reduction in rates that could take them below 3% by 2026.
Interest rates are an important factor in the real estate market, as they directly affect the cost of mortgage loans. When these rates decrease, loans become more affordable, fueling demand for properties. This can also lead to an increase in real estate prices, as values tend to move inversely to interest rates. This context has opened new investment opportunities in this market, especially in the multifamily sector. This segment, made up of single-owner properties that house multiple residential units in the same building or complex, has established itself as a pillar of the American economy, playing a key role in meeting the growing need for rental housing.
Thus, in a scenario where purchase prices are high, many opt for renting as a cheaper alternative. While this phenomenon has driven growth in all real estate segments, the multifamily sector has especially benefited, as it not only offers flexibility and affordability to tenants, but also allows investors and owners to capitalize on the increase in demand by increases in rent. The vacancy rate for this type of asset has shown surprising stability, remaining at 8.7% year-on-year. Interestingly, when excluding newer assets that have not yet had time to be occupied, stabilized vacancy has decreased by approximately 10 basis points over the same period.
Following this dynamic, multifamily housing construction reached its highest level since 1988, with the delivery of approximately 440,000 new units in 2023. This trend has intensified in 2024, with average new units reaching 543,000 during the first six months of the year, an increase of 21% compared to the same period last year. This growth is helping to reduce the housing deficit, estimated at between 300,000 and 400,000 units annually.
Now, how does this benefit investors? The reduction in interest rates allows for a faster revaluation of assets and increases the profitability of properties, both in final value and rental income. For those investing in key sectors such as multifamily or industrial, this translates into much more attractive distributions.
In summary, Multifamily Real Estate continues to show solid fundamentals. With sustained demand, favorable demographic trends and a housing market that is still inaccessible for purchase, a favorable context for investment is presented. The recent rate reduction offers a unique opportunity for investors, those who focus on properties located in strategic markets can take advantage of this trend, ensuring a constant income stream and sustained appreciation of their portfolios.
CEO of Dividenz
Source: Ambito
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