Looking Back on our Predictions for 2024

Let’s see how 2024 turned out for the multifamily industry compared to our 5 predictions for 2024 back in January. We expected 2024 to be the bottom (we still think it was), but the rebound hasn’t been clear. With continued volatility in interest rates, the market hasn’t been able to find solid ground from which to move forward. At the same time, multifamily operations have been challenged by historic levels of new apartment supply and rising expenses. This makes for a good buying opportunity, provided one has capital and a good lending partner. Here are how the predictions stacked up:

1.Phenomenal buying opportunity as time runs out for many owners. [Right]

If you could find a deal that worked in 2024, your basis is indeed phenomenal compared to the 2022 peak. It may even be on par with values from back in 2017, as was the case with our acquisition of 27TwentySeven Apartment Homes (“2727”) in Dallas. We feel like we received a 30% discount to peak pricing. The seller wanted out of the market as this was their only asset in Texas. And, because we had purchased Saddlehorn Vista in Fort Worth only 9 months prior, we were known to be an active buyer. This helped us achieve attractive pricing. Since we purchased 2727, there have been two other comparable transactions, including our next-door neighbor. That property sold for more on both a $/unit and $/square foot basis and it’s about 20 years older than 2727. We think this checks the box as a smart purchase.

2.Considerable new apartment supply creates tepid rent growth. [Mostly Right]

Nationally, new apartment supply hit a 40-year high. According to RealPage, over 557,000 new apartment units were delivered over the past year through Q3 2024. That compares to average annual deliveries of 195,000 from 2000 to 2019. In some markets, the supply surge is even more pronounced. Take Austin, TX for example. Quite possibly the hottest market in the country in 2022, it received 26,869 new apartment units over the past 12 months. That’s 8.5% of their total inventory. It’s no surprise that rents this past year in Austin fell 8.1% and vacancy rose from 2.8% to 7.6%. We’re seeing this dynamic in our markets as well. While Carrboro, NC (where we own a large property) didn’t receive any new supply, adjacent Chapel Hill received 1,000 new units over the past 12 months. That’s enough to cause our market to start implementing concessions, which has a negative impact on revenue. However, renewals remain strong both in rate increases and in the percentage that renews. Home prices remain out of reach for many, and renting remains the best choice.

3.Expenses will remain elevated, causing NOI to be flat or down. [Right]

This is probably the most frustrating piece to be right about. We’ve seen insurance rates continue to increase. Water rates (not usage) have increased 50% since 2021 at one of our properties. Property taxes are being reassessed higher as appraisal districts are using dated cap rates (e.g., 4% cap rates from 2022 instead of 5%+ today). Net operating income is down for many properties even if revenue stayed flat. Add historic levels of new supply and rent concessions to the mix, and operations are stressed for multifamily.

4.We’ll get clarity on the 10-year US Treasury by Q3. [Wrong]

At this point in the year, I expected interest rates to level out, either at 3.5% or 5.5%. Instead, the election, and subsequent proposed cabinet picks, increased rate volatility. We’re still waiting for rates to settle down into a narrow band. Or at least pick a direction and systematically follow a new path. Unfortunately, we still don’t have clarity on interest rates, and this is one of the main reasons for the stalemate in the transactions market right now.

5.Cash will be trash again. [Kind of Right]

While not completely trash, cash’s day in the sun is starting to fade. The Fed has started its rate cutting cycle, and short-term money market funds have seen reductions in yield. Investors are starting to think about what to do with their excess cash positions. In January, we pointed out that the S&P was near an all-time high. The S&P just hit another all-time high this past week. There are plenty of reasons to move out of cash, and we believe more reasons are forthcoming.

In the new year we’ll outline our predictions for 2025. Hopefully we’ll be right about interest rates next year!