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Multifamily Market a Study in Contradictions

by Houston Agent

Contradictions are apparent in certain pockets of the multifamily market, but not all.

We’re reported numerous times on the surging nature of the multifamily market, but a new study out from Fitch Ratings has pointed out a strange contradiction in the market’s performance that calls into question its relative health.

As reported by Reuters, all of the details of the multifamily sector would point to a healthy submarket of housing. Occupancies are up, rents are increasing, and incentives, which landlords were using to increasingly frivolous effect to attract prospective homebuyers during the boom years, are nowhere to be seen; however, data suggests there is trouble in paradise, one that highlights the ultra-local aspect of real estate.

The multifamily sector, according to Fitch, is one of housing’s worst performing sectors in the firm’s CMBS-ratings, in terms of delinquencies, and that discrepancy is perplexing analysts left and right.

One hypothesis that Reuters mentions is multifamily’s inverted relationship to homeownership. Just as multifamily properties have flourished in some of the harder-hit spots in the country for homeownership (where delinquent/foreclosed homeowners and recent college graduates have opted to rent rather than buy), it has languished in some of the more higher-performing locations for single-family homes.

Examples include New York City, which features both the second-highest performing city in the Case-Shiller and no less than four major areas of crisis for multifamily CMBS (and New York state leads the nation with a 53.8 delinquency rate), and California, a state whose housing problems are not by any means news, but where CMBS delinquency rates are just 4.4 percent.

Yet, as HousingWire pointed out, there are markets that defy that idea. In Texas, for instance, both single-family and multifamily segments are performing swimmingly, and in Las Vegas, where home values are down a whopping 62 percent, multifamily housing is not fairing much better, where the latter’s delinquency rate is 32.6 percent.

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