This article is presented by Connect Invest.
“Predictable” isn’t exactly the most exciting qualifier for a real estate market, but it’s the exact word that investors in the multifamily sector have been longing to hear for years. The era of huge market upheavals brought by the pandemic seems to be finally, truly over, with rent growth and supply-and-demand balance returning to pre-pandemic patterns.
It can be difficult to accept, but the fact is that the 2% rent growth rate by 2027—a prediction from Yardi Matrix executives Jeff Adler and Paul Fiorilla—is in line with normal, pre-pandemic rates. In fact, this is what the real estate market should look like. Here’s why.
Why “Slow But Stable” Isn’t a Bad Thing
The double-digit growth rates of 2021 will not return again; these were a historical anomaly brought about by a singular convergence of factors, namely:
- Pent-up demand from people who could not buy a home during lockdowns.
- An unprecedented housing shortage caused by people not selling, and a lack of building supplies disrupting new construction.
- Brand-new migration patterns creating housing hot spots.
None of these conditions were ever meant to last, but many investors understandably were building their business strategy around these anomalous market spikes. For a few years, an investment plan along the lines of “This metro area has the highest rental growth right now” could deliver impressive short-term results.
What was wrong with this picture? Nothing, on the surface of it, in terms of aligning your strategy with market conditions. But there was another variable aside from rental growth fluctuations that began creating an imbalance: construction.
Construction booms inevitably…