Freddie Mac: More moderation ahead for multifamily in 2023

With the sector’s fundamentals already showing signs of slowing, look for the U.S. apartment market to continue to cool next year, according to Freddie Mac Multifamily’s 2023 outlook report.

The government-sponsored enterprise’s projections don’t come as a surprise. Yardi Matrix recently reported that rents finally saw a monthly decline in November after growth had slowed throughout the latter half of 2022. Likewise, occupancy rates have been on a downward trajectory, while the uneven economic landscape has applied the brakes on what had been resilient lending activity.

“Volatile capital markets and a rise in the 10-year Treasury rate have driven a contraction in multifamily lending in 2022 that will persist into 2023,” said Steve Guggenmos, vice president of Research and Modeling for Freddie Mac Multifamily. “Economic uncertainty and rising prices have led to waning housing demand.

“This, paired with elevated construction levels, will drive rent growth to level off and eventually normalize. This environment is putting downward pressure on property values, which have grown at a heightened pace in recent years.”

Freddie expects the effects of seasonality to be more pronounced during this winter season compared to years past. Yardi rent figures already bear this out, although Freddie’s economists noted that rent growth through August surpassed historic averages, providing some cushion to weather further declines to end the year. Rent growth for 2022 is still expected to end the year at between 6% to 8% annually, with Freddie forecasting further moderation to open 2023 before a rebound in the latter half of the year to finish at 3.9%.

The uneven economic situation has been just as impactful to lending activity as it has to rents. Citing ongoing uncertainty and the Federal Reserve’s resolutely hawkish interest rate policy, Freddie Mac expects multifamily origination volume in 2022 to fall to $460 billion. That’s a drop of about 5.5% compared to 2021, with a further decrease to $440 billion (a further reduction of about 4% to 5%) expected in 2023.


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