As many of you may know, my focus is multifamily real estate. Over the past few months, I have made several posts on my instagram (@bostonmultifam) about the state of the market and where it might be headed all backed by some interesting data. I will attempt here to string a few of those posts together and offer any insight that I can. The goal here is to foster collaboration, feedback, etc. from anyone and everyone that reads this even if (hell, especially if) your views are not 100% congruent with my own. I encourage anyone who would like to get a dialogue going and/or share their thoughts to join the Level Up Facebook Group here. Now let’s get after it!

I am going to try a format here of basically summarizing snippets of many stories over the past ~3 months to paint an overall picture up until recently.

“In April, the S&P CoreLogic Case-Shiller home price index showed an annual gain of 14.6%, the highest in more than 30 years. Experts say as high home prices have made ownership inaccessible for many Americans, more have resorted to renting. In turn, the increased demand has led to higher rents” (The Real Deal). This is a MAJOR case as to why my investors (myself included) are bullish on multifamily.

June, 2021 – The U.S. housing market needs 5.5 million more units, says WSJ report. Shortages of labor, land, and materials have limited the pace of construction growth. This is a major factor as to why I do not currently believe in any sort of bubble for multifamily.

Apartment rents have reached their highest level in 2 years. Rents have hit new peaks in 38 of the 50 largest metros ( The rental market is recovering stronger than anyone predicted and isn’t showing any sign of slowing down.

2021 rents are higher than they would have been if there had been no pandemic disruption. Using rent data through June, the report noted year-to-date national rent growth hit 9.2% – more than 2-3x the pre-pandemic rent growth trend (graph below).

Pandemic Pricing Is Officially Over.jpg

In June 2021, true rent growth for new leases surged 14.6% in market-rate apartments nationally. Three main reasons:

  1. Net demand in Q2 was the strongest ever. Occupancy matching all-time high of 96.5% and only going up. Demand for all types of housing is surging.

  2. Operators and asset managers are trying to keep occupancy in target ranges (typically 93-96%), and they use price as a control to do so. But not in 2021 when renters are willing to pay higher rents to secure a place to live.

  3. Renters are wealthier than ever. Huge growth in income at pretty much every level. Today’s new lease signers can afford to pay more (graph below).

True U.S. Apartment Rent Growth Surges to Another Record High in June.jpg

Data from Apartment List and my thoughts on it:

  1. “Mortgage rates have increased from 2.65% this past January to 2.9%”. People focus way too much on rates when buying a house. Sure, they matter, but what difference is a couple hundred basis points going to make? If you can’t afford it at 4-5%, you certainly can’t suddenly afford it at 2-3%. What really matters is focusing on how tight banks are lending – that is the market forecasting that really tells the story.

  2. “Home prices have increased by 15.4% over the last 12 months, and housing market analysts call for home prices to increase by 5.12% in 2022”. There is no sign of prices decreasing any time soon, which forces/makes people want to rent vs. buy.

  3. “The percentage of those surveyed saying it’s a ‘bad time to buy’ hit 64%, up from 56% last month and 38% last July”. Same point as above.

Now into July 2021: record low vacancies and rents continue to soar to record highs. Rents went up >20% in 18 of the nation’s 50 largest metros. 3 markets nearly hit 30% – Phoenix, Tampa, and West Palm Beach. This continues to be fueled by rising wages and favorable demographics – HUGE tailwind for the multifamily market.

Now, some people may argue that wage increase has not kept up with rent increase, so therefore it is not a factor – I disagree. Wage increase does not need to keep up, it simply means that people are either a) spending a higher percentage of their income on living (rent to income ratio), or b) not buying a home aka saving a big expense there, which goes straight to renting (graph below).

With all of this talk on rents skyrocketing, are owners printing money? Not exactly… yet. True ‘new lease’ rents surged 17.2% nationally in July, yet ‘lease revenue’ increased only 2.8%. Why? Many apartments are still affected by heavily discounted pandemic rates. Important definitions here:

  1. Renewal rents – when leases are renewed with the same tenant(s)

  2. New lease rent – when a unit is rented out at a new price

Since renewals account for ~50% of rental revenue, they are weighing down the skyrocketing new lease prices, until they overturn or renew at much higher prices (graph below).

While New Lease Rents Surge, Apartment Revenue Growth Remains Muted.jpg

Where is Boston in all of this? Only 5 of the nations largest metros are still behind pre-pandemic rents. OMG is Boston one of them?! No… but it barely made the cut. IMO we are a city that will never go out of style. Boston is a formidable city with a diverse set of economic drivers that will support it through times when other cities face market instability.

Most recently, as many of you know, the federal eviction moratorium ended. Some key points:

  1. This does not mean immediate evictions happen. The process can only work as fast as the local judicial process (likely to be very slow).

  2. Local bans remain in some areas (including NY and CA).

  3. Any increase in evictions that ensues will look like a ‘spike’ but that is mostly because it will be increasing from near zero evictions.

  4. Thousands of people abused the moratorium, while the vast majority of people continued to pay, far more than headlines suggested.

Landlords can get a bad rap, but in reality they did help many renters – they want to get rid of the abusers. Overall, this is a big win for multifamily.

My final thoughts:

  1. I am bullish on multifamily. Sure, I may be biased, but hopefully this data helps my case.

  2. Inflation is higher than interest rates. This means you are BORROWING MONEY FOR FREE. Go buy a multifamily if and when you can.

  3. People are getting higher wages and want the flexibility to WFH and travel to different cities – that means renting your units.

  4. There is just too much demand and not enough supply to stop rent growth.

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