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It’s a good year for multifamily loan originations

Despite numerous predictions in the recent past that stated that real estate’s multifamily sector will slow down in the latter part of 2017 (and well into the early months of 2018), a new analysis shows that this isn’t the case. In fact, the multifamily sector is doing so well that experts are shifting their opinion. Instead of “cooling down” for the remainder of the year, the multifamily sector is now expected to perform well, with some predictions stating it will hit record numbers this year.

This is all based on a new analysis made by Freddie Mac. Kroll Bond Rating Agency also took a look at data gathered from Freddie Mac lending over the recent months and came to the same conclusion.

Earlier predictions stemmed from market certainty during the first part of 2017 despite the steady increase in investor interest and capital in the multifamily sector, according to an article by CoStar.com. So, what changed?

As the second half of the year rolled in, more deals and the continuing increase in property across the country has Freddie Mac predicting that multifamily loan originations will increase at least 3 to 5 percent for the remainder of the year. That reflects a staggering amount of approximately $270 billion to $280 billion, which, according to Freddie Mac Multifamily’s Steve Guggenmos (vice president of research and modeling), are record numbers.

The new projection comes just in time as construction of multifamily projects continue to increase in different parts of the United States. This trend is expected to continue until early 2018.

On the downside, the increase in construction activity has resulted to higher vacancy rates across the country. It is also taking some time for new units to be absorbed in certain markets, exerting downward pressure on rent growth in big cities including Miami, San Francisco, Washington DC, and New York City.

Rent growth will also be varied across different US metros, with cities such as Seattle, Nashville, Atlanta, and Portland slated to experience higher levels of  rent than previous years. Boston, San Francisco and New York will still remain below national averages, but compared to 2016, the rent growth this year is expected to be positive.

Overall, it’s still a good year for the multifamily sector, according to Guggenmos. By the end of the year, most of the metros are expected to end with vacancy rates that are below their respective historical averages.

In a separate analysis, Kroll Bond Rating Agency has come to roughly the same conclusions. According to the firm, Class A properties are more affected by the increase in construction activity, a positive thing considering the $132.3 billion worth of multifamily loans that were securitized since 2010. Class B and C properties, which are mostly underlying collateral worth at least $103.9 billion, are barely affected.

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