A Faster Recovery for Multifamily Housing

by 19 Apr 2012


(TheNicheReport.com) -- Economic recoveries tend to begin when certain indicators reach their lowest point. This point is often referred to as a bottom by many investors, and it is like a Holy Grail of real estate investment. In the past, opportunistic real estate investors waited to strike at that right moment when a bottom was clearly manifest and clear signs of upward recovery were evident. In essence, this is the proverbial "buy low, sell high" moment of oversimplified investment philosophies.

Real estate investors in the United States have waited long enough for a housing bottom, and after many false alarms a true bottom seems to have arrived in the form of all-time low figures of housing starts and sales of new homes. As with many other macroeconomic indicators, bottoms can be appreciated in retrospect, usually a few weeks after they edged up considerably. This is the case now with housing starts of multifamily housing, namely apartment buildings and townhouses.

A Closer Look at Multifamily Properties

The number of new multifamily housing construction projects has finally reached a bottom. This can be appreciated by the number of new permits filed and the increased presence of busy construction crews at future apartment building sites. There is a healthy demand for rental properties, as evidenced by the number of families who are looking for lease contracts and the increase in the value of those agreements.

The demand for rental properties is diametrically opposed to the early days of the 21st century when American home builders could not complete single-family residential projects for buyers fast enough. There are a few reasons for this reversal. One is that mortgage lending has become very strict for many would-be house hunters who no longer qualify for home loans, and thus they look for rentals instead.

American families searching for rentals would love to find a reasonable lease agreement on a single-family homes, but the large amount of distressed properties makes it difficult to find an unencumbered house that can be lawfully rented. Quite a few multifamily projects fit this unfortunate description as well, which is why so many new ones are being built. Besides, investors want to entice renters with new properties.

As more multifamily projects are completed, they will become available on the market, ready to attract would-be renters at a nice profit. This does not bode well for investors of single-family residential units, as the market will forget about these homes for a bit, thereby preventing overall median prices from improving.

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