According to Freddie Mac, the multifamily market outlook for 2023 is dim due to rising interest rates, a cooling housing market, and inflation fears.
In 2023, mortgage aggregators expect a further slowdown in multifamily housing due to moderated rent growth, increases in vacancies, and lowered loan originations. In addition, Freddie Mac expects property values to decline, but gross income will grow at a positive pace.
Capital markets volatility and a rise in the 10-year Treasury rate have caused multifamily lending to contract in 2022 and will continue in 2023 according to Freddie Mac Multifamily’s vice president of research and modeling Steve Guggenmos. A combination of rising prices and economic uncertainty has led to a decline in housing demand. Together with elevated construction levels, this will slow rent growth and, eventually, bring it back to normal. Property values, which have accelerated in recent years are receiving downward pressure from this environment.
A Freddie Mac report indicates that annual rent growth is likely to be around 6-8% at the end of 2022, with gross income rising at a pace of 3.5%. In spite of the strong multifamily fundamentals, the vacancy rate is projected to increase modestly to 5.1%.
As far as 2023 is concerned, Freddie Mac anticipates that small, southwestern and Florida markets will perform best. Small and large markets make up the bottom-performing markets, which are expected to see a large amount of new supply.
In addition, given the economic uncertainty and volatile Treasury rate environment, Freddie Mac expects origination volume to fall 5.5% to $460 billion by the end of 2023, continuing the decline of 4-5% to $440 billion in 2022 and 2023. The market is expected to stabilize in the second half of the year, however, which will cause fundamentals to slowly improve.