2019 Real Estate Report: How Does the Multifamily Market Look? – Kiplinger

If you’re considering investing in a multifamily venture, or if you’re already in the market, there are challenges and opportunities to watch for in the coming year. From rent trends to supply and cost factors, here’s what to expect in 2019.

Multifamily real estate posted another exceptional year in 2018. Whether judged by gains in property appreciation or income growth, multifamily fundamentals delivered. Mapping the year ahead, investors are positioning themselves now as the market signals that dynamic changes are underway.

Rising Interest Rates (The 800-Pound Gorilla)

Debt pricing looms as the largest multifamily market mover in the coming year. In the first half of October alone, an equities sell-off dropped the Dow Jones almost 7% and pushed the 10-year Treasury yield to a high-water mark of +75 basis points for the year. That rate, if left unchanged, would rank as the third-largest increase since 2000. On the public side, the Fed is widely expected to continue bumping up the federal funds rate through 2019 at least.

Private market behavior and federal monetary policy both point to rising interest rates. And more so than any other investment, real estate class and multifamily asset pricing is tied to debt pricing.

Inexpensive debt capital and plenty of equity seeking placement in the multifamily market have supported rising property values in recent years. But when the cost of borrowing goes up, cap rates must move correspondingly as investments don’t make financial sense until sale prices come down. It’s a pricing fundamental that has always existed, but one that sellers never want to concede. In fact, the seller’s market has run so long that owners now faced with downward pricing adjustments don’t want to budge.

The bottom line, with that inherent price pressure in mind, 2019 is looking more like a buyer’s market. Attractive multifamily acquisitions will be captured by buyers who secure assets that are “right priced” to account for rising interest rates.

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By KARLIN CONKLIN | Investors Management Group
December 5, 2018