Predictions For Multifamily Investments In 2022


Founder, CEO of Blue Lake Capital LLC. Helps passive investors grow wealth through real estate. Podcast Host: REady2Scale.

Following 2020, a year that was marked by great uncertainty with the start of a pandemic in the United States, many people were nervous about how the real estate market would fare in 2021.

It turns out that for multifamily real estate, 2021 was a year of higher prices, compressed capitalization rates (cap rates), low vacancy and high rent growth. Some assets, primarily Class C, which are typically in poorer condition and not as well located, had higher delinquencies. But, overall, there were all-time high prices and compressed yields.

My real estate investment firm, for example, saw almost full occupancy and rising rents. From my vantage point, despite all of the uncertainty of the pandemic, the multifamily real estate sector is still thriving and still a great place to deploy capital if you are looking for stable returns and a hedge against inflation.

Predictions For 2022

I believe that prices will remain high throughout 2022. However, I think that cap rates might remain the same. I also expect vacancies to remain low and rents to keep growing. The reason why I think that this will happen is that I believe migration from core markets to secondary and tertiary markets, and migration from the cities to the suburbs, will continue.

Many people are still working from home due to the fact that it is more convenient and provides extra protection from Covid-19. This means that millions of people in the United States will have the opportunity to work further away from the office and will want to move out of the cities and into the suburbs as a result.

In 2021, there were fewer multifamily real estate deals done, but the pipeline picked back up again later in the year (paywall). This is because many people rushed to sell properties before the end of the year. Evidence points to this at least partially being due to the fact that owners were afraid of potential changes to the tax laws.

Right now, I am predicting that in 2022, the pipeline will be better than the first three quarters of 2021. This is good news for real estate investors. So, in 2022, real estate should remain a solid investment and multifamily real estate should lead the charts.

Other High Predictions

It is not just me who thinks that real estate prices will be significantly higher in 2022. In fact, a number of high-profile real estate companies, mortgage lenders and financial institutions have all also made similar predictions about real estate prices in 2022.

For example, Zillow predicts that home prices will rise 11.7% in the next year. That is not quite as high as the 17.7% home price appreciation that took place from 2020 to 2021; however, it is still quite high. Goldman Sachs believes that home prices will soar even higher and is predicting that home prices will rise 16% in 2022.

Key Factors Pushing Home Prices Higher

There are a number of reasons why home prices have risen so much and will almost certainly continue to rise in 2022. The first of these reasons is that interest rates have dropped to very low levels during the pandemic, making it significantly easier for many people to obtain a mortgage.

Another key factor driving home prices upward is the fact that home building dropped significantly after the 2008 housing market crash, resulting in fewer homes being built. It is estimated by Freddie Mac that the housing market is under-built by approximately 4 million homes. This is particularly fortunate for multifamily investors, as housing shortages further drive the demand for multifamily properties.

There is also a reluctance of elderly people to sell their homes in order to move to retirement communities or nursing homes due to the fear of catching Covid-19 in these settings. All of these factors combined with substantial stimulus spending by the U.S. government are creating a perfect storm that is driving the prices of homes up rapidly. Until the supply catches up with demand, this trend is likely to continue.

Investing Correctly For The Current Real Estate Environment

Both single-family homes and multifamily properties can make for great real estate investments at the moment, though multifamily offers the unique benefit of greater economies of scale. Nonetheless, both housing prices and rent prices are increasing steadily. In fact, the national median rent increased by 11.4% in 2021. This trend is likely to continue into 2022.

If you have never invested in multifamily real estate before, there are several ways that you can do it — including as an individual owner and operator or through a syndication that pools investor funds together to buy larger properties. There are many firms that provide syndication services for accredited investors and can help you invest in a multifamily property as a passive investor.

Conclusion

Because of the uncertainty caused by the pandemic, many investors are looking for stable investments that will appreciate steadily in value and generate stable returns.

According to what I have seen and a variety of reputable sources, real estate prices are projected to go up at least 8%-15% in the coming year. There is simply too much demand and not enough supply. Higher rent prices are also expected, which means that both single-family homes and multifamily properties can be great investments. I don’t see this trend stopping any time soon, especially while the pandemic is still going on and while interest rates are still on the lower side.


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