The volume of multifamily loans originated in 2017 could grow to $295 billion, according to Freddie Mac’s April 7 outlook. Depending on whether the 10-year Treasury rate rises or falls, Freddie Mac forecasts the multifamily origination volume to grow between 3% and 6% this year.
2017 vs 2016 Multifamily Origination Volume
Freddie Mac’s Multifamily Pricing and Volume Outlook for 2017 predicts that if the 10-year T rate is to remain near 2.5%, the multifamily origination volume could be $295 billion.
The final numbers for 2016 are still not in. Nevertheless, the GSE believes that this estimate represents a six-percent growth from its 2016 estimate of $280 billion, which is a 12-percent increase over the year.
The projected 2016 volume is hinged on “increasing property prices, a full construction pipeline, a high number of maturities, and low interest rates.” Freddie Mac’s 2016 forecast is also higher than the Mortgage Bankers Association’s projected multifamily origination volume of $261 billion.
If the relevant Treasury rate abruptly rises, Freddie Mac pegs the multifamily volume growth in 2017 at 3%. The volume could still grow in a higher-rate environment as it is accompanied by higher inflation, wage growth and price appreciation, Freddie Mac says.
“The multifamily market is poised for growth and record origination volumes in 2017 under either interest rate scenario. This fact underscores the underlying strength of the multifamily sector thanks to a strong labor market, demand for new households, and steady absorption rates,” Steve Guggenmos, vice president of research and modeling at Freddie Mac, said in an accompanying press release.
“Consequently, a moderate rise in interest rates alone will not be enough to cause any significant disruption to the multifamily investment market,” Mr. Guggenmos stated.
At the end of the trading day on April 10, the 10-year Treasury yield is 2.36% from 1.71% during the same period last year.
Multifamily Price Growth, Cap Rate
Depending how high the interest rates will move this year, Freddie Mac places the nationally aggregated capitalization rate (cap rate) between 5.8% and 6%.
This will reduce the national property price growth rate from 13% in 2016, to 2.9% – 4.5% this year. Notably, the annual property price growth rate in recent years has averaged 14%.
Freddie Mac provides loan products for the purchase, refinance or rehabilitation of multifamily communities, including targeted affordable housing for low and very low-income families.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.