Is It A Bubble? Is It A Trend? How Can You Profit?
We’re the Eugene-Springfield area multifamily experts. We know where the market is headed because that’s our specialty. You can’t afford not to know what your investment will be worth next year, or in 5 years.
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Today, we’re talking with René Nelson, CCIM. A well known multifamily expert and commercial real estate broker, about commercial real estate in Eugene. This special series focuses on issues related to multifamily properties, that many investors aren’t as familiar with as they should me.
René, what factors are driving multifamily values upward?
René: You know Patrick, multifamily has enjoyed years of rapid growth due to the expanding population and most recently, rising minimum wage and the employment opportunities. With unemployment numbers low and lots of businesses expanding, it’s creating more jobs and that allows people to then go out and rent. So vacancies are at an all time low. In a recession, people have a tendency to double up, young people often move home to live in mom’s basement in order to survive but in a robust market, people, especially Millennials, want their own space, so they’ll push the rental market and right now, they’re creating historic highs for new households created.
Strong economic growth will typically spur the multifamily market as hourly wages continue to go up. It’s a strong sign that the labor market is rebounding and that we’re going to continue on this pace for some time. The anticipation is that over the next ten years, we will probably see between 5 to 6 million new renter households. So, clearly this shows a growth of demand for home ownership and renters among the younger households.
Well René, that begs the question, when is the trend expected to flatten out and why?
René: Well, the rental market is not recession-proof. We saw that in 2006 to 2008, but you know, due to a large demographic shift and lifestyle preference right now, we’re continuing to see a strong rental market. There are three things that play into the escalation of the renter households, that we’re definitely going to see in this next coming year. We’re going to see a tightening of the credit market from lenders. We’re going to see lower income not allow people to qualify because housing prices are still climbing, so lower income in relation to house prices and then larger required down payments to buy a house.
So, it’s going to keep a lot of people as renters, and some people just don’t want the hassle of owning a home but overall, renters are going to have the income, the disposable income to be renters, but they’re not going to be able to afford to buy a house because that housing market just continues to climb at this point. So, unless the Fed starts to really increase interest rates, which will typically slow down a business from wanting to expand or grow, or the housing market collapses again, which I really don’t think will happen. I think we should be on this growth pattern for at least the next 12 to 18 months minimum, maybe as long as even 24 to 36 months but definitely, a strong market for the next 12 to 18 months.
Thank you René, now our listeners know what’s knew with commercial real estate in Eugene right now. If you need more information, go to eugene/commercial.com, or call René at 541-687-5871.