Performance in the multifamily market was strong during 2019 and is expected to remain healthy into 2020, but with the potential for moderated growth in comparison to recent years. Vacancy rates at the national level have held steady over 2019 even with significant new supply delivered, so markets remain tight entering 2020. Rent growth remains healthy at the national level and in most major metropolitan areas. Below are some highlights from our research. Read the report.

Supply and Demand

Supply is expected to moderately outpace absorptions throughout 2020. Expectations are for demand to cool slightly compared to the elevated levels seen over the past few quarters due to lower forecasted employment growth. However, over the past few years, we have seen absorptions outperform expectations and new supply has been delayed, which has led to fundamentals performing stronger than anticipated.

Cap Rates & Originations

Cap rates remained relatively flat throughout 2019 and property prices continued to grow due to solid multifamily fundamentals and strong investor demand. The most recent data available on multifamily origination volume exceeded expectations. Volume in 2018 came in at $339 billion, as reported by the Mortgage Bankers Association (MBA), representing a 18.9% increase over the prior year. These characteristics, along with lower interest rates, will continue to create strong demand for multifamily investments through 2020. As a result, multifamily origination volume is expected to come in at $369 billion in 2019, up 8.8% from 2018, and $390 billion in 2020, an increase of 5.7%.

What Can We Expect in 2020?

Growth in the multifamily market should remain healthy through 2020, but with expected higher levels of new supply, rent growth will moderate and vacancy rates are expected to increase modestly. While lifestyle preferences and demographics are creating strong demand for multifamily rental units, the lack of for-sale housing inventory at lower price points is also keeping potential home buyers in rental units. Given the nationwide undersupply of housing and an economy that is projected to maintain positive growth, we do not see any short-term obstacles that would cause a significant downturn in the multifamily market. Read the report.

Find more research and analysis from the Freddie Mac Multifamily Research team.