Freddie Mac: Apartment Rents to Outpace Inflation, and P.S., There’s No Multifamily Bubble

CoStar reports this morning that Freddie Mac has stated that there is no bubble in the value of multifamily properties.

From CoStar:

“Many investors have made note of the cap rate compression in the multifamily
space. The American Council of Life Insurers (ACLI) reports cap rates on
apartments with new mortgages made by life insurers have fallen, dropping from
8.9 percent in the first quarter of 2003 to 5.77 percent in the second quarter
of 2013, a 35 percent decline and the lowest recorded by ACLI since the series’
inception in 1965.

“Yet Freddie Mac’s chief economist Frank Nothaft said
he believes housing values remain linked to market fundamentals and that cap
rate compression in the multifamily sector may have bottomed.

“The
decline in cap rates and growth in rents (adjusted for inflation) are key
fundamentals that explain the rise in apartment values over the past decade,”
said Nothaft. “Seen through this lens, the rise in property values appears to be
consistent with overall economic forces, and the slower appreciation over the
past year reflects the bottoming of cap rates. Cap rates are expected to
gradually move higher in the coming year as long-term yields move higher, and
rents are likely to outpace overall inflation, leaving apartment values firm and
on solid ground.”

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