Multifamily Housing Outlook Economic and Multifamily Real...

Fannie Mae © 2014 1

Multifamily Housing Outlook Economic and Multifamily Real Estate Market Update

Tanya Zahalak Economist

Multifamily Economics and Market Research Fannie Mae Multifamily Mortgage Business

June 17, 2014


Source: Tribune Media Services


Macroeconomic Trends: Steady Improvement

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Source: Department of Commerce, Bureau of Economic Analysis, per Haver Analytics DLX

* Fannie Mae estimates

While GDP decreased by 1.0% in Q1, it is expected to accelerate for the rest of 2014.

Average Quarterly Change in GDP (SAAR)


-10,000

-9,000

-8,000

-7,000

-6,000

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

The economy has finally recovered all of the jobs lost during the Great Recession…

Change in Total Nonfarm Payrolls Since December 2007

Source: BLS



… with the unemployment rate steadily falling...

Source: U.S. Department of Labor, Bureau of Labor Statistics

4%

5%

6%

7%

8%

9%

10%

11%

-1000

-800

-600

-400

-200

0

200

400

600

Une

mpl

oym

ent R

ate

(000

s)

Monthly Change in Nonfarm Employment and the Unemployment Rate



Source: CBRE-EA, Q1 2014

…and many metros will keep seeing job growth, although some at a slower pace over the next two years.

Change in Employment – Select Metros



Source: Cartoon Stock


Real Estate Fundamentals: Rental Demand Stable National estimated multifamily vacancy rates are at their trough…

Source: Fannie Mae Multifamily Economics and Market Research Estimates * Preliminary

Estimated National Rent Level and Vacancy Rate

$1,115

5.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

$920

$970

$1,020

$1,070

$1,120

Rent Level

Vacancy Rate


Real Estate Fundamentals: Rental Demand Stable … with vacancies down to below historic averages in many metros…

Vacancy Rate Relative to 15 Year Average – Select Metros (bps)

Source: CBRE-EA, Q1 2014


Real Estate Fundamentals: Rental Demand Stable … keeping rent growth positive for nearly four years now…

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

(2,000)

(1,500)

(1,000)

(500)

0

500

1,000

Qua

rter

ly R

ent G

row

th

New

Job

s

Job Growth

Rent Growth

Source: CBRE-EA – Recessionary quarters shaded in yellow.


0%

1%

2%

3%

4%

5%

6%

7%

8%

Real Estate Fundamentals: Rental Demand Stable …bringing concession rates to their all-time lows.

Source: Axiometrics

National Concession Rate

Mar. 2014 -1.1%


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

(000

s)

Single Family (1 unit)

Multifamily (2+ units)

Real Estate Fundamentals: Rental Supply All housing starts are on the rise…

Housing Starts: Single Family and 2+ Unit Structures

Source: Fannie Mae

Forecast


Real Estate Fundamentals: Rental Supply … and multifamily projects underway are rising quickly…

Source: CBRE-EA/Dodge Pipeline, April 2014 * Anticipated completion date

National Condo and Apartment Completions and Units Underway

0

10

20

30

40

50

60

70

80

90

Thou

sand

s

Apartments

Condos


Real Estate Fundamentals: Rental Supply … but there are really only a few metros that have a significant number of completions coming online soon…

0

5

10

15

20

25

30

35

40

Uni

ts (T

hous

ands

)

Beyond

2015

2014

Source: CBRE-EA/Dodge Pipeline, April 2014 – Metros with 2,000 or more units underway

Multifamily Apartment Units Underway – Select Metros

Expected Year of Completion


0

10

20

30

40

50

60

70

80

90

Uni

ts (T

hous

ands

)

Pre-Planning

Planning

Final Planning

Bidding

Real Estate Fundamentals: Rental Supply … and it’s even more concentrated for new projects in the planning stage.

Source: CBRE-EA/Dodge Pipeline, April 2014 – Metros with 5,000 or more units in planning stages

Multifamily Apartment Units by Planning Stage – Select Metros


Source: Cartoon Stock

“This is how I can afford to pay the rent and still look fabulous.”


Multifamily Affordable Housing: Affordability Still a Concern Affordability improved slightly for renters because growth in incomes modestly outpaced growth in housing costs.

Changes in Median Housing Costs and Household Income, 2009 to 2012

Source: Housing Landscape 2014, Center for Housing Policy


15.4%

39.3%

59.6%

16.4%

42.8%

62.5%

0%10%20%30%40%50%60%70%80%90%

Extremely Low IncomeRenters (Income<=30% of AMI)

Very Low Income(Income<=50% AMI)

Affordable at 60% of AMI

2009 2011

Relative Proportion of Affordable Multifamily Housing 2011 vs. 2009

Source: Fannie Mae, 2011 American Housing Survey

Based on cumulative affordable units. For instance, if a unit is affordable at Extremely Low Income i.e. affordable to income <= 30% of AMI, it is also affordable at the Very Low Income (<= 50% of AMI) category.

However, the number of units affordable to Very Low Income renters declined by 200,000 units to 6.3 million in 2011.

Multifamily Affordable Housing: Affordability Still a Concern


As a result, working renter households are more likely to be severely cost-burdened compared to homeowners.

Percentage of Working Households with a Severe Housing Cost Burden

24.5% 25.6% 26.4%

25.4%

21.2% 21.6% 20.9%

18.6%

15%

20%

25%

30%

2009 2010 2011 2012

Working Renters Working Owners

Source: Housing Landscape 2014, Center for Housing Policy

Multifamily Affordable Housing: Affordability Still a Concern


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Class A Class B/C

Multifamily Completions by Class Type

Source: Reis

There has been hardly any class B/C multifamily new construction over the past decade…

Multifamily Affordable Housing: Little New Affordable Stock


35% 36% 37% 37% 38% 38% 38% 39% 40% 40% 41% 41% 42% 42%

65% 64% 63% 63% 62% 62% 62% 61% 60% 60% 59% 59% 58% 58%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Class B/C Class A

…and the share of Class B/C units shrinking steadily. Multifamily Inventory Share by Class Type

Source: Reis, based on multifamily sample tracked

100% = 8.8 M 9.0 M 9.1 M 9.2 M 9.3 M 9.2 M 9.2 M 9.3 M 9.3 M 9.4 M 9.6 M 9.7 M 9.8 M 9.9 M



0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

LIHTC Units Placed in Service LIHTC Properties Placed in Service Source: HUD Low Income Tax Credit Database as of October 1987-2008; Integratec estimates based on HFA allocations 2011-2014

* Integratec assumed 15% of the current year allocations, 60% of the prior year allocations and 25% of two years prior allocations would be placed in service. For example, 2014 reflects 15% of the 2014 allocations, 60% of the 2013 allocations, and 25% of the 2012 allocations.

Low Income Housing Tax Credit Units (LIHTC) Projects placed in Service since 1987

Also, the number of LIHTC units placed in service has declined since 2005…



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

New Construction Rehab Unknown

…and the proportion of new units built with tax credits appears to have decreased over the past decade from approximately 60% to 40%.

Source: HUD Low Income Housing Tax Credit Database as of May 2014. Note that 2013 data is based on data reported for 24 projects only.

Units Placed in Service Broken Down by New Construction vs. Substantial Rehab



Coupled with steady rent growth in Class B and C properties…

National Effective Rent Growth by Class

Source: Axiometrics

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

% In

crea

se fr

om P

rior Y

ear

Class B Class C

Multifamily Affordable Housing: Rent Growth


0%

1%

2%

3%

4%

5%

6%

6/1/2012 9/1/2012 12/1/2012 3/1/2013 6/1/2013 9/1/2013 LIHTC Properties Market Rate Class B/C

Vacancy Rates for Market Rate and Affordable Properties 6/1/2012 – 9/1/2013

Source: Integratec Tax Credit Central, REIS

Low Income Housing Tax Credit Properties: Favorable Fundamentals

…vacancies for affordable housing have been consistently lower than market rate housing recently…


… and vacancies at LIHTC properties continue to be low…

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

Boston-… Los Angeles-…

Minneapolis-St. … New York-…

San Francisco-… Seattle-…

Baltimore-… Washington-…

Chicago-… Dallas-Fort …

Houston-The … Philadelphia-…

Detroit-Warren-… Atlanta-Sandy …

St. Louis, MO-IL

6/30/2012

9/30/2013

Median Vacancy Rate Trends for LIHTC Properties – Select Metros Vacancy Rates (%)

Source: Integratec, Tax Credit Central



…with debt service coverage ratios solid in most major metros…

0.60 0.80 1.00 1.20 1.40 1.60 1.80

New York-Newark-Jersey City, NY-NJ-PA Baltimore-Columbia-Towson, MD

Los Angeles-Long Beach-Anaheim, CA San Francisco-Oakland-Hayward, CA

Washington-Arlington-Alexandria, DC-… Boston-Cambridge-Newton, MA-NH

Chicago-Naperville-Elgin, IL-IN-WI Minneapolis-St. Paul-Bloomington, MN-WI

Seattle-Tacoma-Bellevue, WA Dallas-Fort Worth-Arlington, TX

St. Louis, MO-IL Philadelphia-Camden-Wilmington, PA-…

Houston-The Woodlands-Sugar Land, TX Atlanta-Sandy Springs-Roswell, GA

Detroit-Warren-Dearborn, MI

6/30/2012 9/30/2013

Debt Service Coverage Ratio




Median Expense Per Unit ($) for Major Metropolitan Statistical Areas


…and operating expenses rising modestly…


$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

6/30/2012 9/30/2013


Median Real Estate Taxes Per Unit ($) for Major Metropolitan Statistical Areas


…but real estate taxes staying flat in most major metros.


$0 $100 $200 $300 $400 $500 $600 $700 $800 $900

6/30/2013 9/30/2013




Elderly LIHTC project vacancies have been consistently tight and getting tighter…



… while expenses per unit for Elderly LIHTC projects remain the lowest of all tenancy types.



Appendix

Breakdown of Single and Multifamily Units


The number of 1-4 unit rentals – Single Family rentals – has been rising. Real Estate Fundamentals: Demographics Favorable

Source: Census Bureau

U.S. Renter Occupied Stock by Structure 25

.9

5.7

19.7

24.2

8.5 11

.1

4.9

28.5

6.3

18.3

22.3

8.4

11.6

4.6

0

5

10

15

20

25

30

1, detached 1, attached 2-4 5-19 20-49 50+ Other*

Dis

trib

utio

n of

Ren

ter O

ccup

ied

Stoc

k (%

)

2007 2008 2009 2010 2011 2012

* Other includes manufactured/mobile homes, boats, RVs, vans etc.


Real Estate Fundamentals: Ongoing Demand

Sources: 2012 American Community Survey

*Dot width is proportionate to number of renters represented by each age group

0%

10%

20%

30%

40%

50%

60%

Age<35 Age 35-64 Age 65+

Share of Total Renters

Age 65+

Age < 35

Age 35-64

0%

20%

40%

60%

0% 20% 40% 60%

Shar

e of

Mul

tifam

ily R

ente

rs

Share of Single Family Renters (1-4 units)

But older renters prefer single-family rentals and younger renters favor multifamily units.

Multifamily Housing Outlook Economic and Multifamily Real...

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