While the National Bureau of Economic Research announced Monday that the longest economic expansion in the nation’s history has come to an end and that the recession began in February, industry leaders are cautiously optimistic.
“For multifamily real estate, it’s important to keep in mind that we have a very strong fundamentals,” says John Sebree, senior vice president and national director, multifamily, at Marcus & Millichap.
Sebree says he has been watching rent collections, with April and May showing positive signs and June looking good at this time. “How much is a result of the increased unemployment benefits and the Paycheck Protection Program (PPP) money that employers have been able to use to keep employees on the payroll and the one-time cash infusion that the Fed gave to all working adults? Everyone has the money and is paying rent.”
The unemployment benefits and PPP are set to run out at the end of July, with probably another stimulus to extend. “As the Fed pulls back on the stimulus it will be important to monitor how many people still have a job. The unemployment rate will certainly drop as people go back into the workforce, but we don’t know how many will still be unemployed in third and fourth quarters,” he says.
Sebree says he expects to see very little rent growth nationally for 2020 and perhaps 2021 as well as increased vacancy. Household growth is expected to fall with renters doubling up or moving in with family, but multifamily housing would still be in relatively good shape even if the vacancy rate rose to between 8% and 10%.
But the big question will come down to how many permanent jobs have been lost, says Ryan Severino, chief economist at JLL.
“It’s almost certain that some percentage of job losses will be permanent, and what impact that has on the apartment market is too soon to know. I don’t know what the timeframe or magnitude will be,” he adds.
While the Great Recession job losses affected more white-collar workers, job furloughs or losses due to COVID-19 and the stay-at-home orders have been more blue-collar oriented.
“Workforce housing is probably going to have more pressure on it, but I think it will be short-lived,” says Sebree. “We have a housing shortage, especially in that workforce housing sector. We could see vacancies go up, but it won’t be for an extended period of time because of the need.”
Sebree also has a concern regarding dense, vertical living metropolitan areas, such as Chicago, New York City, and San Francisco. “It will be interesting to see how high-rise living plays out in those markets, but it’s a little too early to tell.”
JLL’s Severino adds that he doesn’t believe it will be the end of cities, “but I wouldn’t be surprised if there was an adjustment period for people going back to what they once did. It’s also an opportunity for pricing to adjust for cities to become more affordable.”
Both Sebree and Severino agree that the suburbs are becoming more appealing to households.
“I have been generally more bullish on office and multifamily in the suburbs,” says Severino. “They quietly had an improvement over the past 10 years. [COVID-19] probably accelerates that move-out trend. The suburbs are becoming more appealing to people than they were before—and across all asset classes. The outbreak and unrest is only accelerating that phenomenon.”
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