Market Changes and Impacts – Fall 2022
As we enter the fourth quarter of 2022, there have been several changes to our local multi-family real estate market since the beginning of 2022 and dating back to Q4 of 2021. Some of our market changes include increasing rents, increasing interest rates, lower vacancy rates and less new construction units being delivered to the rental market. The one constant that remains in place is that it is still a wonderful time to be a multi-family landlord in the Puget Sound region.
Here are a few of the recent changes and impacts we have seen to our multi-family market:
Market Change |
Market Impact
|
|---|---|
| Residential interest rates have moved from 3 – 4% in 2021 to 6 – 7.5% in 2022 | Single Family homebuyers are getting out priced as mortgage rates have become unaffordable to many and will force the “would have been” home buyer back into the rental market. Property owners will continue to see a rise in rents and even lower vacancy rates. |
| Multi-Family interest rates have moved from 3-3.5% in December of 2021 to 5-5.5% in September of 2022. | Interest rates will suppress loan sizes and create larger equity requirements over the short-term. The rapid rise in interest rates will limit new inventory coming online creating opportunities for sellers to achieve attractive pricing. Lenders margins will shrink to curb the impacts of the rise in the 10-year treasure rate. Sellers are achieving extraordinary pricing in relation to the spread between current interest rates and cap rates. Properties are trading at a cap rate below current interest rates. |
| The number of units delivered from 2016-2019 averaged 10,708 units a year throughout King County in comparison to 8,255 on average from 2020 to 2022 year-end expectations. | Inventory of new units coming online will continue to pull back which will support the continued rental growth in Seattle. July 2022 rents have increased 8.3% year-over-year. Expectations point towards another 12-19% rental growth in Seattle over the next 3 years. Development projects continue to hit delays due to labor shortages, construction costs and interest rates. Many development sites are being put on hold until construction prices and construction debt becomes cheaper. |
A Few Market Observations from Our Team:
Many of the new investors in the apartment market include technology workers looking to diversify their portfolio into real estate, next generation syndicators both locally and out of state, as well as a strong presence of 1031 buyers. We have seen many clients opt into DST’s (Delaware Statutory Trust’s) through a 1031 tax deferred exchange for purposes of deferring taxes while maintaining cash flow without the stress of day-to-day requirements of property management. Additionally, we are seeing many newer investors perform a cost segregation analysis as it allows for accelerated depreciation and in turn can lower investors tax burden, increase cash flow, and free up funds to reinvest.
If you have any questions about the current real estate market, interest rates, DST’s, cost segregation or loan options for acquisition, disposition, or refinance purposes, please contact Brian Platt at Brian@ParagonREA.com, Michael Urquhart at Michael@ParagonREA.com, or Ben Douglas at Ben@ParagonREA.com for more information.