Freddie Mac Outlook Shows Multifamily Market to Moderate but With Positive Rent Growth Expected in 2023

Rhea-AI Summary

Freddie Mac's Multifamily 2023 Outlook predicts a slowing multifamily market, with rent growth moderating and vacancy rates expected to increase. The report forecasts a fall in loan originations by 4-5%, estimating a total of $440 billion in 2023. Economic uncertainty and rising 10-year Treasury rates have contributed to these trends, leading to a projected decline in property values. Despite these challenges, gross income is expected to grow by 3.5% in 2023, indicating potential market stabilization in the latter half of the year.

Positive

• Gross income projected to increase by 3.5% in 2023.
• Market fundamentals expected to rebound in the second half of 2023.

Negative

• Loan origination volume projected to decline by 4-5% to $440 billion in 2023.
• Vacancy rates expected to rise modestly to 5.1%.
• Property values are projected to decline due to economic uncertainty.

Higher 10-Year Treasury Rates Will Slow Origination Market Modestly

MCLEAN, Va., Dec. 21, 2022 (GLOBE NEWSWIRE) -- The multifamily market will continue to cool off in 2023, according to the Freddie Mac (OTCQB: FMCC) Multifamily 2023 Outlook, with rent growth moderating, vacancies ticking up and loan originations slowing for the year. Property values are also expected to decline, but gross income growth will remain positive. Fundamentals are likely to rebound slowly in the second half of the year as the market stabilizes.

“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 & 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.”

The Freddie Mac Multifamily Outlook is available online at FreddieMac.com along with a companion viewpoint and podcast.

The 2023 Multifamily Outlook includes several key findings:

• Rent growth has moderated, and some data providers are now indicating rents are declining on a monthly basis. Freddie Mac expects growth for 2022 to end the year between 6-8% year over year.
• Some data sources indicate vacancy rates have been increasing throughout 2022, while others show very little change. Freddie Mac expects vacancy rates to end 2022 up slightly over the prior year.
• For 2023, Freddie Mac expects multifamily fundamentals to start the year slowly but rebound in the second half of the year. The Outlook projects gross income to increase 3.5% and the vacancy rate to rise modestly to 5.1%.
• Multifamily construction levels remain extremely high, which could put additional pressure on fundamentals in some markets.
• In 2023, Freddie Mac expects the best performing markets to be predominately smaller southwestern and Florida markets. The bottom performing markets are a geographically diverse mix of small and large markets, many of which are expected to see high levels of new supply.
• Throughout 2022, the 10-year Treasury rate has been increasing and volatile, while cap rates have held relatively stable, which is causing cap rate spreads to compress. This will put upward pressure on cap rates, which would put downward pressure on valuations.
• Given broad economic uncertainty and volatile Treasury rate environment, Freddie Mac expects origination volume in 2022 to fall about 5.5% to a total of $460 billion, with 2023 seeing a further decline of 4-5% to $440 billion.
  

Freddie Mac makes home possible for millions of families and individuals by providing mortgage capital to lenders. Since our creation by Congress in 1970, we’ve made housing more accessible and affordable for homebuyers and renters in communities nationwide. We are building a better housing finance system for homebuyers, renters, lenders, and taxpayers. Learn more at FreddieMac.com, Twitter @FreddieMac and Freddie Mac’s blog FreddieMac.com/blog.

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Michael_Morosi@FreddieMac.com

FAQ

What does Freddie Mac's 2023 Multifamily Outlook predict for rent growth?

Freddie Mac's 2023 Outlook indicates that rent growth has moderated and is expected to slow further, with some data suggesting monthly declines.

How will loan originations be affected in 2023 according to Freddie Mac?

Freddie Mac projects a decline in loan origination volume by 4-5% to approximately $440 billion in 2023.

What factors are contributing to the slowdown in the multifamily market?

Higher 10-year Treasury rates, economic uncertainty, and elevated construction levels are contributing to the slowdown in the multifamily market.

What is the expected vacancy rate for multifamily properties in 2023?

The vacancy rate for multifamily properties is expected to rise modestly to 5.1% in 2023.

Which markets are expected to perform best in 2023?

The best-performing markets for 2023 are expected to be smaller southwestern and Florida markets.