Each week, I conduct a thorough analysis of the real estate market to gauge its current state and future trajectory.
My approach is comprehensive, pulling from a variety of sources including leading investment firms, respected market experts, financial institutions, and brokerages to ensure a well-rounded perspective. This strategy is designed to minimize bias, providing insights that are as accurate and objective as possible.
Traditionally focused on the broader housing and multifamily sectors, I am considering broadening this exploration to additional asset classes in the future.
I have synthesized and summarized the last few month’s worth of pulse checks into this report and intend to publish it quarterly. With this being the first iteration, I expect these to improve in form and accuracy over time.
Let’s dive in.
2023 Real Estate Market Recap
The 2023 real estate market experienced a recalibration, impacted by high mortgage rates and a surge in home prices, which dampened buyer enthusiasm despite low inventory levels favoring sellers.
The median home sale price reached $387,600 by November 2023, with an average 30-year mortgage rate standing at 6.96% in early January 2024. The market dynamics were influenced by these factors, along with the Federal Reserve’s policies significantly impacting mortgage rates.
The multifamily sector, in particular, faced a slowdown due to an oversupply and economic uncertainties, affecting rent growth and occupancy rates.
Heading into 2024, the market is at a crossroads, with potential interest rate stabilization offering a glimmer of hope for improved financing conditions and market liquidity.
However, challenges remain, including continued high construction costs, supply-demand imbalances, and the ongoing housing shortage. The evolving landscape suggests a cautious yet opportunistic approach to real estate investment and homeownership in 2024.
2024 Housing Market Outlook
While there’s anticipation of a potential drop in rates that could boost the market in 2024, the housing inventory remains low, particularly for entry-level homes, suggesting a continued seller’s market despite challenges for buyers and sellers alike.
Many believe we will see relatively flat to slightly higher home prices in 2024 with potential new demand from lower interest rates being offset by supply increases from current homeowners looking to make a move in the anticipated lower interest rate environment.
There appears to be no real solution to the housing shortage, making a market crash unlikely, but price adjustments are possible, with foreclosure activity rising but not expected to surge.
2024 Multifamily Market Outlook
The multifamily market in 2024 is poised under a constellation of stabilizing interest rates, demographic shifts, and a balance between supply and demand.
After the 2023 slowdown due to economic uncertainties and an influx of new supply, the market is expected to see modest rent growth and a slight uptick in occupancy rates, albeit below long-term averages.
Interest rates, potentially stabilizing or decreasing for the first time since the COVID-19 pandemic, could create favorable financing opportunities for buyers, leading to improved transaction volumes and stabilized property valuations. This environment may reduce the bid-ask spread, facilitating more deals and improving market liquidity.
Moreover, the multifamily sector is likely to benefit from demographic trends, such as the demands of Gen Z and a continuous housing shortage, despite challenges from new multifamily supply and previously high-interest rates.
Strategic investments, particularly in Class B multifamily properties with value-add opportunities, are viewed as promising due to their higher rent increase rates in 2023 compared to other classes.
This nuanced landscape suggests that while 2024 presents challenges, it also offers unique opportunities for prepared investors, especially in secondary and tertiary markets where new supply levels are lower and living costs more affordable.
Thomas’ Take
In every report, I strive to reduce “spin”, reserving my insights for this concluding segment to enable readers to form independent opinions based on the presented information.
Looking at multifamily housing, the enduring housing inventory crunch is likely to persist, impacting affordability and positioning multifamily as an affordable alternative. This reality, coupled with the robust demand from Millennials and Gen Z, suggests strong underlying support for multifamily as a viable long-term investment.
Yet, 2024 may witness a softer multifamily market due to the recent influx of new construction and prevalent uncertainties. This landscape may offer opportunities to acquire distressed properties at reduced prices, particularly as some sellers look to offload assets to manage short-term debts amidst unanticipated interest rates.
For limited partners (LPs), this scenario could present an opportune moment to invest with reputable sponsors with strong track records, poised to capitalize on what 2024 has to offer.
Will I invest in multifamily in 2024? Hard to say for sure. With a range of unrelated prospects on my radar this year, I may not invest in multifamily, despite this seemingly favorable time to jump back in.
As for the housing market, I’ve been contemplating homeownership for some time. Despite the appeal of my current rental’s cost-effectiveness and flexibility, I’m drawn to South Florida’s market, buoyed by its long-term growth potential and the likelihood of favorable refinancing options in the future.
We’ll see.
The Bottom Line
There are typically buying opportunities during any part of the market cycle for just about any asset class as long as you know where to look and come in with the right strategy.
As primarily an LP at this point, I see the opportunity to invest in multifamily during 2024 with high-quality sponsors and may do just that should my capital constraints allow me to.
I want to thank you for taking the time to read this report. Again, as I gain more experience synthesizing and writing these reports, I do expect their overall structure, content, and accuracy to improve.
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