Multifamily Appreciation: Finding the Baseline

Multifamily Appreciation: Finding the Baseline

How do we forecast or project real estate appreciation levels and identify a baseline data point? Is there a measure that can provide quantitative authority on the subject?

Housing and multifamily appreciation has returned with upward spikes.  All markets are not equal, of course, yet some have seen double-digit price increases and apparent strong support for believing this rate of increasing value is the norm. Yet for those of us that have lived through the recent cycle we realize that what comes up can go down.

One cause of the recent run up in home prices  is years of housing construction levels below those necessary to maintain pace with population increases.  As the pendulum swings some markets may experience over-building, or an over-supply, but this will be the exception as many markets are enjoying a rebound in new construction that is warranted.

What gage can we use to measures future appreciation?

Setting aside construction levels what gage can we use to measures future appreciation?  Job growth and personal income growth.

Like appreciation, job growth is uneven; some markets experience increases in jobs while other markets lose jobs. Probability dictates that appreciation levels are going to be higher in markets that are experiencing job growth.

Long-term, however, there is no better predictor of real property appreciation than income growth.  Note the emphasis on long-term.  Select a market, then begin to segregate it by income.  Then over-lay income growth. The resulting analysis will present a high degree of correlation between property appreciation and increases in personal income.

Two categories that will damper appreciation is increases in interest rates and mortgage under-writing standards. Therein lies the tug-of-war on price.  Prices shrink as interest rates rise, prices rise with personal income. The saga continues...

Mr. Wilhoit is the author of two books: How To Read A Rent Roll: A Guide to Understanding Rental Income and Multifamily Insight Vol 1 - How to Acquire Wealth Through Buying the Right Multifamily Assets in the Right Markets.

For information on property management audio courses, books and our live weekly leadership academy, visit PowerHour Books and Courses.

About This Blog: Multifamily Insight is dedicated to assisting current and future multifamily property owners, operators and investors in executing specific tasks that allow multifamily assets to operate at their highest level of efficiency. We discuss real world issues in multifamily property management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. Seek professional counsel.

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