Source: Fitch Ratings / #Multifamily #Apartments
NEW YORK, NY - Housing data released by the Commerce Department confirmed Fitch's expectation that the housing market continues to gain traction, increasing the likelihood of moderating multifamily demand growth. Housing permits, a proxy for future construction, were up 27% and 4% higher on a year-over-year and quarter-over-quarter basis, respectively, for November 2012.
In a report issued last week ("U.S. Equity REITs: The Key Issues for Multifamily"), Fitch estimated that 80% of the growth in demand for multifamily properties from 2009-2011 was attributable to the decline in the home ownership rate. Looking forward, Fitch expects decreasing rental affordability and the increasing relative/absolute attractiveness of home ownership will cause multifamily demand and operating fundamentals to more closely track economic growth. Today's data supports Fitch's expectation that a recovery in housing is underway.
Fitch expects multifamily demand growth to ebb from current levels; however, Fitch does not anticipate a material retreat. In Fitch's "2013 Outlook: U.S. Equity REITs," we estimated same store net operating income for 2013 of 4%-6%. This forecast does not include the risk of Eurozone pressures impacting the U.S. economy, nor improvements in the housing market being substantial enough to drive economic growth that eases rental affordability concerns.
In addition to the sustainability of multifamily demand, Fitch also noted key risks including increasing supply, single-family residential rentals, and the fate of Fannie Mae and Freddie Mac (government-sponsored entities [GSEs]). The GSEs are a critical cog in the multifamily finance market, accounting for 44% of mortgage debt outstanding as of June 30, 2012. There is limited political will to keep the GSEs under conservatorship indefinitely; however, Fitch does not expect banks, life insurance companies, and the CMBS market to have the willingness or capacity to entirely fill the void.