As we head deeper into 2022, experts say the possibility of a recession seems more likely than ever. Due to the economic uncertainty, the Federal Home Loan Mortgage Corp., more commonly known as Freddie Mac, expects multifamily growth to slow down from the numbers seen at the beginning half of the year.
According to the Freddie Mac Multifamily Midyear Outlook, released in August 2022, inflation and rising interest rates are major contributors to the slowdown in volume, expected to flex between $440 billion and $450 billion, an 8%–10% decrease from 2021.
The government-sponsored mortgage lender says that the first signs toward multifamily moderation appeared in the second quarter, with gross income still expected to increase 6.8% and the vacancy rate to remain at 4.8%.
In an August 2022 press release, Freddie Mac expressed an optimistic outlook for the remainder of the year.
“We believe the multifamily industry is well positioned to weather the economic uncertainty and interest rate volatility impacting the broader economy throughout the rest of the year,” said Steve Guggenmos, vice president of multifamily research and modeling. “While we expect total volume projections will be down in 2022, rent growth and occupancy will still remain above their long run averages.”
Rent growth has remained higher than usual, up by 16%. The report states that the demand for rental units during the first quarter of 2022 hit a record 700,000 units, then dropped to 430,000 in the second quarter. This is despite another August 2022 Freddie Mac report that highlights the effect of raising rent prices, with 60% of respondents saying their rent increased within the last 12 months, and 1 in 5 people who experienced a rent increase stating that they are now extremely likely to miss a payment.
The Multifamily Midyear Outlook also predicts that Florida and the Southwest markets will outperform the nation. Smaller Midwest markets are expected to have the lowest performance rates for the year.
Even with the contraction, Freddie Mac says that investors will continue to be attracted to the strength in underlying multifamily units, expecting to land at 6.8% gross multifamily income growth by the end of the year. Freddie Mac says that since January 2021, every market experienced rent growth of at least 10%, with approximately two-thirds of markets seeing rent growth of 20% or more.