The Multifamily Market Outlook for 2022

After years of steady performance from multifamily properties, we inevitably wonder what changes will come in the following year—especially following a bit of market tumult from early in the pandemic. Fortunately, it appears the multifamily market recovered well from early pandemic challenges, and signs point toward 2022 being a year of growth for the industry.

Life Bridge Capital is a leading real estate syndication company. We offer our investment partners the opportunity to leverage shares of multifamily rental properties into a passive monthly income. Learn More.

Tenant Demand Expected to Remain High

After an increase in vacancies early in the pandemic, multifamily occupancy rates rebounded in 2021 and are expected to remain high in 2022. Vacancy rates reached 7.8 percent at the end of 2019 and then climbed to 8.5 percent in the fourth quarter of 2020.

Conversely, by the end of 2021, Fannie Mae predicts vacancy rates to drop to between 5.25 and 5.75 percent. Factors behind the demand include drastic home price increases over the last two years and an ongoing housing shortage in the United States.

Home prices increased an average of 19.7 percent between July 2020 and July 2021, marking the most rapid change in home prices in over 30 years. Besides reducing consumers’ buying power and making renting a necessity for many, the period featured extreme home buying competition. This caused many Americans to choose to rent, to remove themselves from a disappointing process.

The rise in home prices also exacerbates the already-existing issue of lack of inventory for the lowest price points. Demand will be most reliable for the most affordable multifamily properties.

Additionally, expect increased demand for properties that support independent senior living through accessibility accommodations and an increase in locations that provide easy access to goods and services. Seniors continue to look for housing options—other than traditional nursing homes and assisted living care—and multifamily properties can bridge the gap until full-time medical care or supervision are required.

New Multifamily Properties Will Absorb Many Tenants

Vacancy rates would likely be expected to fall even further, but for the large number of new multifamily properties coming onto the market through 2022. Fannie Mae expects new buildings will outpace demand through at least the second quarter of 2022 and perhaps well into 2023.

Expect Continued Rent Growth

Like occupancy rates, average rental rates dropped early in the pandemic for increasing in 2021, and rents are expected to continue to grow through 2022.

Rents grew rapidly in 2021 and are currently expected to reach 5 percent before the end of the year. However, economists attribute that rapid growth due to pandemic demand patterns rather than an ongoing market trend. 

Instead, expect moderate, modest growth in the upcoming year.

Interest Rates May Rise

Multifamily investors may enjoy another year of rock-bottom interest rates in 2022, but the low rates are unlikely to remain until 2023. The central bank is tasked with setting monetary policy to support the nation’s economy and extremely high inflation in October 2021. Both set off alarm bells for many. Chairman Jerome Powell has commented many times that he considers current inflation rates to be a transitory symptom of the pandemic, without the need for immediate action by the Fed. 

Powell’s term was slated to end in 2022, and although many progressive Democrats pushed the President for a change in power, President Biden announced on November 22 that he intends to nominate Powell for a second term. This removes one more variable from the speculation regarding what 2022 brings regarding interest rates and economic policy.

While various members of the Federal Reserve have indicated that federal fund rate increases will come in late 2022 or early 2023, each month’s inflation report will shape the narrative. This will answer whether the economy can support another full year of low-interest rates. To see more on our mortgage interest rates forecast in 2022 you can read here.

Less Traditional Markets Will Continue to Shine

Previously overlooked metro areas in states like Idaho, Georgia, and South Carolina are expected to retain their newfound popularity–created by workforce changes during the pandemic. Whether moving closer to family, taking advantage of lower prices or simply looking for more space, many Americans emigrated from traditional hotspots.

At this point, we lack indications that those moves are being reversed. Increasingly, employers seem to be capitulating about returning to old staffing patterns, and seemingly never-ending virus surges across the country make a return to our previous normal seem unlikely—at least in the immediate future.

To understand the future of trends for real estate you need to know the history of multifamily housing trends, here we have put together a short guide to read so you can know the full story of where we came from, and where we might be going.

Final Thoughts

The upcoming year appears to be a promising one for multifamily investing. To get involved with Life Bridge Capital, start by joining our investor list.

Life Bridge Capital is a leading real estate syndication company. We offer our investment partners the opportunity to leverage shares of multifamily rental properties into a passive monthly income. Learn More.

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