Yardi Predicts Strong Fundamentals, Uncertain Policy for 2017

January 20, 2017

 

The strong growth trends in multifamily rents and property values in the past few years point to continuing positive fundamentals in 2017 for most metros, according to the winter 2017 edition of the Yardi Matrix U.S. Multifamily Outlook. However, Yardi does expect the rate of rent increases to slow, as well as a negative impact from an oversupply of luxury units, falling transaction yields, a slight drop in occupancy, and a lack of affordable housing.

 

Economic Outlook

Overall, economic growth was strong in the second half of 2016, with increases in employment, GDP growth, manufacturing, inflation, and retail sales. Yardi still expects moderate growth this year, but the economic policy changes promised by the incoming Trump administration remain uncertain in nature. The financial markets have grown optimistic, given the potential for lower taxes, fewer and looser regulations, and increased infrastructure spending and domestic production. Yardi notes that the Dow Jones Industrial Average, NASDAQ, and the S&P 500 all reached all-time highs following the election. If reductions to government regulations are enacted as promised, they could spur price growth and lending activity.

 

Rent Outlook

Yardi expects the rent-growth deceleration that began in the second half of 2016 to continue into 2017. This slowdown has its source in metros where supply and demand are mismatched, such as San Francisco, Denver, and Austin, Texas, where high demand and low supply led to severe rent deceleration after rates rose higher than tenants could afford.

 

Supply and Demand

Yardi Matrix predicts that 320,000 new units will come on line this year, which would mark a 5.3% increase from 2016’s 303,000 new units. This year may signal a peak for new construction, however, as new permits have leveled off.

 

Capital Markets

Investor interest in multifamily is currently high, with property values 50% higher than they were at their pre-crisis peaks and acquisition yields at 5.6% nationally in the third quarter of 2016, according to Real Capital Analytics. Concerns about whether the market has peaked have led to a slight slowdown in capital flow, but good market conditions have largely continued, fundamentals are strong, and property income seems stable.

 

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