U.S. Apartment Market Vacancy Rates at 13-Year Lows

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According to Freddie Mac's mid-year multifamily outlook, the U.S. multifamily market is very strong with vacancy rates at a 13-year low. Additionally, a large cohort of young adult renters and potential renters, coupled with continued existing demand for apartments is expected to meet the new supply of units being constructed. 

Steve Guggenmos, Freddie Mac's senior director of multifamily investments and research said, "The multifamily market will continue to be favorable into 2015 as multifamily fundamentals move towards historical norms. The strong demand in this sector is partly due to employment gains, particularly among young adults."

Freddie Mac Apartment Outlook Highlights Include:

• The multifamily rental housing market is strong despite the fluctuating macroeconomic indicators in the first half of the year.

• Supply of new multifamily units is being absorbed by demand and market fundamentals are expected to remain strong over the next two years, converging towards historical averages.

• Multifamily debt origination volume will pick up in the second half of this year, projected to end the year around $161 billion, or $11 billion less than in 2013. The volume in 2015 is projected to increase slightly from 2014.

• An estimated 3.9 million potential households weren't formed due to the Great Recession, with young adults accounting for close to 75 percent of those pent-up households.

• Over the next decade, an estimated 440,000 multifamily units may be needed each year to meet the growing demand, based on demographic trends.

Guggenmos further commented, "Absorption of multifamily units was very strong in the beginning of 2014. As a result, vacancy rates are at their lowest level in 13 years. By the end of 2014, we expect vacancy rates to turn the corner as new supply is delivered to the market."

"Over the long-run, we expect the demand for multifamily units to be stronger than pre-recession levels. As the economy improves and most pent-up demand releases, demographic trends will be disproportionally favorable for the multifamily sector due to the young adults comprising a large share of suppressed household formation," concluded Guggenmos.