News & Opinions
The latest news and insights from Hanley Wood’s outspoken experts and key thought-leaders throughout the residential and commercial design and construction industry.
Is Multifamily Heading Toward a Bubble?
Linsey Isaacs / April 9, 2013
With its low cap rates and growing new construction, is multifamily heading toward a bubble?
The short answer is no, the multifamily industry isn’t heading toward a bubble, but the long answer is more complicated. Cap rates dropped across the country in 2012 but remain above peak levels. Further, when one considers the interest-rate differential between now and the peak, cap rates are not close to being in bubble territory. That said, billions of dollars of capital have been raised to invest in multifamily, and yields in major markets are too low for most of this capital, so we’ll be watching nonmajor markets carefully to see if this glut of capital drives pricing into bubble territory. On a related note, most of the development activity in this cycle has been in major metros with high barriers to entry, but if development starts to ramp up in smaller markets, watch out. Lastly, any sudden movements in terms of either interest-rate policy or the GSEs’ role in the market could change the game entirely.
— Ben Thypin, director of market analysis, Real Capital Analytics