Is a Rebound on the Horizon for Multifamily?
Presented by Andrew Gaines
Is the rental housing market ready for a positive turnaround? Arbor, a major player in multifamily lending, thinks so. Arbor just published their Spring 2025 outlook report. It suggests that we are at the cusp of a new cycle in multifamily. They provide evidence that multifamily valuations are at or near the bottom and poised for upward movement. That would be a very favorable development for real estate investors in 2025. Citing the divergence between public and private real estate market indices, they report that “historically, REIT-based asset valuations have proven to be a leading indicator of transaction-based asset pricing. As a result, the bifurcation between the two measures implies that apartment transaction prices, which have yet to reach a bottom, are likely to see positive momentum in 2025.”
As shown, private market transactions through November of 2024 demonstrated declining price movement. However, publicly traded Real Estate Investment Trusts had their prices bid up over the same period. Because public markets are more liquid it is not surprising that changes in trend show up there first and foreshadow what is likely to occur in the private markets in short order.
Invesco, reported on this same phenomenon in December of last year indicating that they believe private markets were poised for recovery in 2025 as well. This chart demonstrates the REIT to private market leading indicator phenomenon even more clearly.
As you can see, the peaks and valleys in the public REIT markets have consistently occurred prior to those in the private markets over that last 5 years. Price momentum has been positive since Q2 of 2024 in public real estate markets. So, we should expect to see a positive change in trend in private transaction prices sometime in 2025.
The bottom line is, this looks like the bottom of the current cycle. If so, now may be the best time to buy multifamily real estate in anticipation of rising prices going forward.