2023 Best Return - Single Family or Multifamily?

Rents decline MoM for the 5th month in a row

Multifamily supply peaking in 2023

Vacancy rates expected to further increase

Concessions increasing.

What's happening in real estate

📉 How much longer will rent growth decline? Rent declines this time of year are typical, however, this year's dip has been significantly sharper than what is usually seen. After peaking at an astronomical rate of +18% in December 2021, YoY rent growth has been declining ever since; now sitting at +3.3%, the lowest it has been seen since April 2021.  January marks the 5th consecutive MoM decline in rent prices as well, falling by .3%; the three months prior had the largest MoM declines since at least 2017. 

More specifically, 67 of the nation's 100 largest cities saw rents decrease in January, with SF (-1.1%) and Seattle (-.9%) experiencing monthly declines of more than triple the national rate (-.3%).  Over the past six months, no large metro area in the country has experienced positive rent growth.

Despite this continuous decline in rent growth, do not expect rent prices to fall indefinitely. With rent prices beginning to moderate out, it may just mean that the seasonal downturn lasts longer than usual; it is probable that rent growth will be positive again in spring/summer. Read more here . 

📈 Record # of multifamily units currently under construction.

According to data from Fannie Mae’s January 2023 Multifamily Market Commentary, 2023 is set to see record growth in the multifamily market.

2020 → 404,000 units
2021 → 369,000 units
2022 → 469,000 units
2023 projection → 783,000 units

But, it is unlikely that all of these will be completed by the end of this year as, according to the National Multifamily Construction Housing Survey, 84% of survey respondents are experiencing construction delays.  Despite this, such unseen growth in supply paired with a cooldown in prices, means that “2023 could be the first time in years that we see property owners competing for renters, rather than the other way around”. Read more here and here.

🔎 Vacancy Rates Continue Increasing. After bottoming out at 4.1% in October 2021, during mid-pandemic when there was rapid household formation, vacancy rates have been increasing ever since: now at 6.1%. But, there has been a recent acceleration of this trend which has led to the price softening that is now being seen.

5 months recent (Aug - Jan 2023) → vacancy increases 1%
5 months prior (Mar - Aug 2022) → vacancy increases  .4%

Vacancy is now just below pre pandemic form (7.1%). After a year of skyrocketing rent growth in 2021, combined with “non-housing related costs also getting more expensive as a result of broad-based inflation, it seems that some Americans are moving back in with family or roommates, or delaying striking out on their own.” Read more here.

🍔Concessions Increasing. In light of landlords having to start fighting for renters, due to the current market of easing rent growth and increasing supply, there has been a recent rise in the number of properties offering concessions. With the supply side of the market only softening, and demand remaining relatively flat, it can be expected that the number of properties offering concessions will only increase throughout 2023.  Read more here.