Most in the multifamily industry are entering the new year with an optimistic mindset. That said, it seems prudent to keep an eye on some of the major real estate trends and potential economic swings that could disturb that upward momentum.
Here is a closer look at three of the biggest indicators of economic recovery that are likely to impact key fundamentals like occupancy and rent growth during the first quarter and through the rest of 2021. Three factors stand out the most during recent conversations among members of Berkadia’s research team:
- The pace and scope of new federal aid
- Impacts of resurging wood and metal prices
- Rising influence of data tools as a competitive advantage
White House Pressures Congress to Go Big, Go Fast on Aid
As recently as Monday morning, President Joe Biden applied additional pressure on the House and Senate in the form of a tweet to push a new financial relief package into law. Analysts speculate that, barring a major breakdown in party unity given that Democrats control both legislative chambers, the earliest that we can expect to see some form of the proposed $1.9 billion relief package arrive on Biden’s desk is in early March.
The need for swiftness is apparent. Despite several positive indicators of economic momentum—multifamily construction is forecasted to accelerate this year riding optimism about the recovery and at a broader level manufacturing indexes are trending in the right direction—overall job recovery has begun to stall.
According to preliminary data released by the Bureau of Labor Statistics, employment nationwide contracted 1.9% in January, marking the worst month for U.S. job growth since March 2020.
Last year, direct payments and other economic support mechanisms were key to keeping renters employed or at least successfully making their rent payments. With any luck, history repeats itself as the next round of stimulus checks and unemployment aid are finalized and distributed near the end of the first quarter.
Supply Chain Breakdowns Drive Construction Costs Higher
High prices for construction materials has long been a difficult real estate trend for the industry to reverse. Unsurprisingly, international supply chain issues driven by the multifaceted impacts of the COVID-19 pandemic have driven those costs up even further.
According to a recent article published by the Business Observer, lumber prices saw a 35% increase during the final weeks of 2020. Likewise, the price of steel rose by 35% over a 45-day period ending in December, according to a multifamily webinar cited in the same report.
In the event of an even greater squeeze on profit margins for multifamily developers and operators, potential rent hikes could put downward pressure on occupancy and damper the currently bullish atmosphere surrounding the multifamily industry.
For now, however, strong demand for multifamily housing persists. Barring an unprecedented shortage of materials, the strong potential for substantial economic recovery before the end of 2021 will help the industry maintain its momentum. That being said, deals may become more difficult to accomplish until the virus is under control and international supply chains return to normal operations.
Data Tools Differentiator During Competitive Recovery
One multifamily real estate trend that was accelerated by the pandemic was the rise of data tools as major competitive differentiators in the industry. Social distancing requirements and new safety standards forced the hands of many companies in terms of their willingness and preparedness to enter the digital world.
Remote work and virtual tours got the most press in 2020 but those real estate trends are ultimately just the tip of the iceberg. Multifamily professionals leveraging powerful, proprietary data tools will be able to use that information to identify relevant economic patterns, discover new business leads, streamline underwriting, and paint a clearer picture of potential investments.
Berkadia Product Manager Christina McDonald spoke to these advantages in a recent employee spotlight, specifically how new data tools have streamlined preparation for her teams operating in multiple states across the country.
“Berkadia’s data tools really give my teams a leg up when going into pitches,” said McDonald, also emphasizing that the focus on technology comes as Berkadia responds to the unique challenges presented by COVID-19.
Return to the Berkadia blog in the second quarter for updated analysis on the most pertinent multifamily real estate trends to watch throughout the rest of 2021.