How Is Multi-Family Section of the Housing Market Coping With the Housing Bust?
The woes of the single family housing market are well documented but one area of the housing market that is less analyzed is the multifamily market, here we discover how this area is standing up to recession.
Multi-family developments, as the name suggests, are those developments which house more than one family under one roof, these range in size from duplexes right through to large apartment buildings and communities.
Typically multifamily developments are bought and sold off of cap rates calculated as a multiple of the net income, but during the housing boom the trend to convert multi-family houses into condo's in many arts of the US, pushed multi-family developments to historic highs.
These developers were buying the developments at a calculation based on potential resale costs of the individual units, which is traditionally greater than the sum of the whole.
When the owner occupant and investor demand, for purchasing the units dried up, the rental demand remained strong.
There are several reasons for the strong rental demand; the erstwhile homeowner who has been evicted needs to live somewhere and as multi-family homes operate at the lower and cheaper end of the rental market then they are popular again.
Also the shadow market (the area of the housing market which includes individual investor owned single family homes, condo units etc) has fallen out of favor with tenants as so many of the owners of the units are foreclosed upon which automatically evicts the tenant.
These tenants are returning to the security of the traditional multi family rental option.
The last main reason for the strong rental demand is the would-be buyer that cannot get conventional finance and so are forced to rent until such time as the market returns to see resemblance of normality.
Condo converters also had the impact of removing many units from the rental pool.
As the artificial demand by condo converters receded then the prices of the multifamily units also fell, however as these prices are underpinned by the income of the properties and as the rental occupancy levels are high they haven't suffered the drastic price falls which have affected many of the other elements of the housing market.
In fact at the current time most multi family units are starting to look expensive when compared to those parts of the market which are affected by foreclosures, Bank REO' s and distressed sellers off loading property at significant discounts to peak pricing.
Other reasons which contribute to the relative stability of the multi family sector include the lack of financing for new multifamily housing developments is contributing to firm up prices as lack of new stock coming online keeps demand high.
A further significant reason is that many operators of multi-family units are experienced and professional landlords that are well equipped to survive the housing bust.
A combination of robust tenant demand, reduction in number of available units, stabilized cap rates and a constricted development pipeline suggests that those investors which already own multi family units will be well placed to survive the recession.
Multi-family developments, as the name suggests, are those developments which house more than one family under one roof, these range in size from duplexes right through to large apartment buildings and communities.
Typically multifamily developments are bought and sold off of cap rates calculated as a multiple of the net income, but during the housing boom the trend to convert multi-family houses into condo's in many arts of the US, pushed multi-family developments to historic highs.
These developers were buying the developments at a calculation based on potential resale costs of the individual units, which is traditionally greater than the sum of the whole.
When the owner occupant and investor demand, for purchasing the units dried up, the rental demand remained strong.
There are several reasons for the strong rental demand; the erstwhile homeowner who has been evicted needs to live somewhere and as multi-family homes operate at the lower and cheaper end of the rental market then they are popular again.
Also the shadow market (the area of the housing market which includes individual investor owned single family homes, condo units etc) has fallen out of favor with tenants as so many of the owners of the units are foreclosed upon which automatically evicts the tenant.
These tenants are returning to the security of the traditional multi family rental option.
The last main reason for the strong rental demand is the would-be buyer that cannot get conventional finance and so are forced to rent until such time as the market returns to see resemblance of normality.
Condo converters also had the impact of removing many units from the rental pool.
As the artificial demand by condo converters receded then the prices of the multifamily units also fell, however as these prices are underpinned by the income of the properties and as the rental occupancy levels are high they haven't suffered the drastic price falls which have affected many of the other elements of the housing market.
In fact at the current time most multi family units are starting to look expensive when compared to those parts of the market which are affected by foreclosures, Bank REO' s and distressed sellers off loading property at significant discounts to peak pricing.
Other reasons which contribute to the relative stability of the multi family sector include the lack of financing for new multifamily housing developments is contributing to firm up prices as lack of new stock coming online keeps demand high.
A further significant reason is that many operators of multi-family units are experienced and professional landlords that are well equipped to survive the housing bust.
A combination of robust tenant demand, reduction in number of available units, stabilized cap rates and a constricted development pipeline suggests that those investors which already own multi family units will be well placed to survive the recession.
