With a weak job market and low consumer confidence, the transition from renter to homeowner remains slow, creating continued opportunities in the multi-family housing market, according to a Property Portfolio Research economist. But he cautioned that Class A multi-family opportunities for investors might have already peaked. “It’s positive news for the rental market, but at the same time investors should be looking at whether certain portions of that rental market are already saturated,” Luis Mejia, director of multi-family research at PPR, a CoStar Group company, told Commercial Property Executive. “It might be a market (where) valuations have already gone higher.” Mejia noted that during the weak single-family housing market, apartment investors have taken advantage of high rental demand, especially in the Class A segment, for the past several years. But they shouldn’t overlook other value-add opportunities in the multi-family sector. “Class B and C investments should provide opportunistic returns, especially to those who successfully identify underpriced properties in long-term-growth locations,” Mejia said. During a wide-ranging discussion of second-quarter housing trends, Mejia noted that single-family home price statistics in certain U.S. markets have the potential to affect the rental market. “In Phoenix, we are now seeing positive home price growth,” he said, noting that the S&P/Case-Shiller Index of home prices showed Phoenix with an 8.6 percent jump in home prices from April 2011 to this April. “Some of that home price growth might be due to investors’ demand. It is something that has happened the last three quarters and needs to be tracked for a couple more quarters.” Mejia said that if the trend is due to renters moving on to single-family homes rather than investors scooping up distressed homes, it could have a larger impact on the multi-family market in that region. “The important thing is to determine if that demand is coming from the rental market or the investment market,” he said. “The negative effect on the rental market would be lower if it is due to the investment market.” Rental growth continues to be strong in metro areas like Boston, Washington, D.C., and New York, where home prices are still relatively flat, and weak in cities like Las Vegas and Orlando, where home prices are still down year-to-year, according to Mejia. Other metros with weak home prices also continue to demonstrate weak housing markets but stronger rental markets, he noted, citing Detroit and the Florida cities of Miami and Tampa. Home prices didn’t suffer much in Texas during the downturn because there wasn’t a housing bubble and employment has been positive. Mejia said Texas markets have seen both improving home prices and rent growth because of the strong employment numbers. With a large number of foreclosures persisting throughout the United States, the single-family home market will remain unstable. But that is good news for multi-family. “I believe there are continued positive prospects for the rental market,” Mejia said.
By Gail Kalinoski, Contributing Editor
