Is the Multifamily Market Correcting?

[Jonathan Twombly]

Two articles that appeared in the trade press yesterday suggest that it may be happening.

First, in Globe Street, there appeared an article called "In Volume Dropoff, It's 2017, Not 2007."

This article cited a Real Capital Analytics report suggesting that commercial real estate investment sales in 2Q 2017 were 5% less than in the same quarter of 2016. In addition, investment volume is now 13% lower than at the peak of this cycle in 4Q 2015. However, the authors argue that a 2007-style crash is not happening. In 2007, six quarters after the peak, sales volume was down by 83%. That's 70 points higher than in the current cycle. So, perhaps we are heading for a soft landing.

In the other article, "Pullback Continues in the Investment Sales Market for Apartment Properties," in National Real Estate Investor, the article argues that "sales of single properties are slowing, suggesting broad correction in the market." In that article, it suggested that things are actually worse than they seem, because much of the soft volume was actually contributed by the sale of a single huge portfolio. Without that sale, volume would have been even lower. The article suggests that what we are seeing is simply a normal "reversion to historical norms," meaning in English a normal correction.

What's your view? What are you seeing in the markets where you're active? Is volume as strong as ever? Or is it tailing off?

[Bruce Runn]

@Account Closed

If you were driving in Minneapolis and you think there is an over supply, you don't actually understand any market dynamics here.  Total vacancy rate for the Metropolitan area 2.3%.  Dramatic shortage of all kinds of housing especially rentals.  Vacancy rate in prime A locations -less than 1%.  I can't speak for the 100-300 unit new construction rentals at double the areas average rents that have been put up in the past 2-3 years but they look close to full and are in the vacancy number.  When they are that expensive, they often entice new renters just to fill up so that's possible.  I own a dozen properties in Uptown ( trendy/high demand) and have a 7 year vacancy rate of substantially less than 1%.   I've had several units turnover this summer and all were rented in 1-2 days with up to 15 people requesting showings the first day I posted on Craigslist and Zillow.