The multifamily housing market has shown remarkable resilience and growth in the first quarter of 2024, even as the broader real estate landscape faces numerous headwinds. The spread between homeownership costs and apartment rental prices widened to $824, marking an 18.4% increase year over year. This gap has become a significant barrier to homeownership, evidenced by a near-14-year low in mortgage applications for home purchases and persistently low active listings, well below pre-pandemic levels.
A notable driver behind the multifamily market's robustness is the increasing presence of foreign-born workers, who have significantly contributed to labor force growth and multifamily demand. Census data reveals that 55% of the foreign-born population are renters, compared to just 42% of the native-born population. This propensity is even more pronounced among recent immigrants (those who arrived between 2018 and 2022), with a staggering 68% renter rate.
Demand for multifamily units surged dramatically in the first quarter of 2024, with 103,826 units absorbed. This represents the largest first-quarter total since 2000 and is 2.7 times the long-term average of 38,005 units. Furthermore, rolling four-quarter demand accelerated to 317,241 units, the highest level since the second quarter of 2022.
On the supply side, new deliveries also hit record levels. The first quarter of 2024 saw 135,652 units come to market, surpassing the previous record set in the fourth quarter of 2023. The pace of new deliveries is expected to continue accelerating through the second and third quarters of 2024 before slowing down in the fourth quarter. Sun Belt markets, in particular, are anticipated to require two to three years to absorb the influx of new units due to their robust pipelines.
Vacancy rates have risen for the ninth consecutive quarter, climbing 66 basis points year over year to 5.9% nationally. However, the rate of increase is decelerating on an annualized basis. Rent growth, on the other hand, has experienced a slight decline, with quarterly growth dipping to negative 0.1% in the first quarter of 2024. Year-over-year rent growth remained flat at 0.2% for the second consecutive quarter. Looking ahead, rent growth is projected to rise throughout 2024, reaching 2.0% year over year as the new supply influx tapers off in the latter half of the year.
Multifamily debt originations have fallen to their lowest levels since 2015, yet the year-over-year decline in the first quarter of 2024 was a modest 7%, suggesting a potential bottoming out of the market. This comes as $669 billion in multifamily loans are set to mature between 2024 and 2026.
Investment sales volume has taken a significant hit, totaling $20.6 billion in the first quarter of 2024—a 25.3% drop year over year. On a rolling four-quarter basis, sales volume declined to $113.0 billion, the lowest point since the fourth quarter of 2014 and 42.2% below the long-term average. Despite this, multifamily properties still represent the largest share of investment sales in the US commercial real estate sector, accounting for 26.2% in the first quarter of 2024.
Cap rate spreads between major and nonmajor markets have narrowed significantly, down to 25 basis points—69.1% below the long-term average of 80 basis points. This indicates that nonmajor markets, with their lower barriers to entry, favorable demographics, and strong demand, are being priced comparably to major markets, which typically face more supply constraints.
Operationally, multifamily expenses rose by 6.5% year over year, driven primarily by a 36.1% surge in insurance costs. This marks the seventh consecutive quarter of double-digit year-over-year increases in insurance expenses, reflecting broader market challenges.
In summary, the multifamily housing market in early 2024 is characterized by robust demand and record-breaking new supply deliveries, juxtaposed with rising vacancies and modest rent growth. Investment and debt origination activity show signs of bottoming, even as operational costs, particularly insurance, continue to climb. The market dynamics indicate a complex but resilient sector, adapting to both economic pressures and demographic shifts.
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