National Trends: The Case for Sustained Multifamily Investment Profits

Good Real Estate Investment News

Kent Hoover, The Business Journal‘s Washington Bureau Chief recently made the case for a sustained improvement in multifamily investment profitability.  Maybe that wasn’t his intent, but that’s what the trends he cites will create.  In his most recent article Hoover quotes data from The National Home Builder’s Association Economist David Crow and Wells Fargo’s Housing Opportunity Index.

In a nutshell, the uninterrupted string of successive increases in year over year (YOY) median sales prices for Single Family Detached homes (SFDs) is pricing some potential homeowners out of the market.  Combined with rising interest rates, fewer and fewer families can afford their own home.  In the past this has spurred rental rates skyward as their is less competition from home ownership to keep them in check.  The wave that follows rapidly rising rents?  Condos (and condo conversions of existing apartments) will come back in style.  Deja Vu!

I spend a lot of time researching business trends and find The Business Journals to be valuable sources of information. Below are key excerpts from Mr. Hoover’s article:

There’s a down side to the housing market’s recovery: More people now can’t afford to buy a house.

Only 69.3 percent of new and existing homes sold in the second quarter of 2013 were affordable to households with the U.S. median income of $64,400, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.

That’s down from 73.7 percent in the first quarter, and it’s the first time this housing affordability measure has fallen below 70 percent since late 2008.

The median price of homes sold in the second quarter was $202,000, compared with $185,000 for the same period a year ago, according to NAHB.

“Home values are strengthening at the same time that the cost of building homes is rising due to tightened supplies of building materials, developable lots and labor,” said NAHB Chairman Rick Judson, a home builder from Charlotte, N.C.

“Together with rising mortgage rates, this contributed to affordability slipping to the lowest level in more than four years,” said NAHB Chief Economist David Crowe.

This problem could get worse, Crowe hinted, if Congress limits the mortgage interest deduction as part of tax reform and ends federal support for the secondary mortgage market, “both of which play enormous roles in keeping home ownership affordable.”

While multifamily investment may be the belle of the ball lately, a number of investors are switching their equities into an ever broadening group of real estate asset types. Whether you are entering the market for the first time or desire to add to an expansive portfolio, let Rose City Commercial Real Estate assist you. For more information, contact Rick Bean at: 503.577.1034 or rick@rosecitycre.com.

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