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Will multifamily residential be spared in the event of a downturn?

Millennials may be unwilling to save the market.


In economic downturns, office and multifamily living spaces are usually the first to falter within commercial lending. Businesses start missing payments and people lose their jobs. However, demand for multi-dwelling units is higher than ever. Will the need for multifamily dwellings continue to grow even if we enter a recession?


As the largest generation begins to start families, home affordability is at an all time low. According to NAR, the average age to purchase a home has increased from 33 in 2021 to 36 in 2022. While some young adults are living at home with their parents, millennials are for the most part renting. According to data from the U.S. Census Bureau, in 2022 only 16% of people 25-34 live with their parents.


Even with declining property valuations and a slowdown in rent growth, we expect multifamily loan performance to remain strong.

While current construction of multifamily properties is the highest in the past 50 years, vacancy rates continue to drop. We expect vacancy rates to remain low over the next 5 years as Gen Z (56% of which currently live with their parents) begin to enter the rental market.

Multifamily units under construction

New projects are slowing as interest rates rise. As a result, multifamily lending is expected to decline by 12% between 2022 and 2023.


Mortgage Bankers Originations by year

Even with declining property valuations and a slowdown in rent growth, we expect multifamily loan performance to remain strong.


Multifamily Residence Demand

Well into 2035, new units will be needed, as demand will continue to outstrip supply.


 

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