A Closer Look Into the Southern California Multi-Family Market
Southern California The real estate market has shown remarkable resilience despite numerous blows during the
pandemic. But now that the lockdowns are over, you would think everything would be back to
normal. However, market stability still seems far from reach. Uncertainties loom as inflation,
higher taxes, high-interest rates, and threats of recession are in the air. How is this going to
affect the multi-family market? Let’s look at this year’s 2022 outlook.
Southern California multi-family market performance
The Southern California multi-family market is well positioned and has done well in the first to
third quarter of 2022. Occupancy remains above average, and rent growth is high at 16%.
Here are some other performance facts of the multi-family market:
● The rental market has seen at least 10% growth since 2021.
● Sale activities in the Southern California multi-family market increased during the first
quarter, with around $3.6B worth of transactions.
● The vacancy rate in the multifamily market remains unchanged at 4.8%.
● The number of permits for new construction projects remains high, which means there
will be a steady stream of supply in the coming years.
One recurring trend since the pandemic is that the demand is shifting higher for rentals than
sales. This means more people are choosing to rent in the meantime while the mortgage rates,
home loan rates, and taxes are still very high and are expected to rise the following year still.
These are regular occurrences, and hopefully, as soon as the economy recovers, the demand
will shift in favor of home sales.
Multi-family market predictions
Will the multi-family market remain strong? The answer is still unknown. However, according to
macroeconomic forecasters, everyone must keep a close watch because the threat of recession
will become even more severe during the last quarter of 2022 until 2023. Fortunately, specific
indicators tell the multi-family market will stay afloat.
First, the rental rates have risen across Southern California by up to 19.8% and 16% across
other states, but the occupancy remains well above the long-term average. Renters are not
leaving, but the trend in demand seems to shift to less expensive markets in the country,
especially since work-from-home setup became available for specific jobs.
Next, new construction projects are underway to meet the higher demand for the rental of single
homes and multi-family housing. In Southern California, 50,086 units are currently under
construction in Los Angeles, Orange County, San Diego, and Inland Empire.
Will renters fill these new supply inventories? The answer is yes, but at a slow and steady pace.
Gross income growth will be slow but steady at 4.3%, which is still above the long-term average
goal of 3.6%. Finally, volume is expected to slow down to $450 billion by the end of 2022 due to
economic instability.
Takeaway
The entire real estate industry is currently in turmoil due to inflation, high taxes and rental rates,
and threats of recession. However, the multi-family market remains steady with new
construction projects underway. Still, macroeconomic forecasters warn investors to keep a close
watch even if the fundamentals are in place.
Sources:
Apartment Industry Enters Final Stretch of 2022 Facing More Headwinds Than Last Year. (n.d.).
CoStar News. Retrieved October 10, 2022, from
https://www.costar.com/article/1122451423/apartment-industry-enters-final-stretch-of-2022-facin
g-more-headwinds-than-last-year
Martin, E. J. (2022, September 15). 2022 Fall Housing Market Predictions. Bankrate. Retrieved
October 10, 2022, from
https://www.bankrate.com/real-estate/housing-market-predictions/#main-content
Southern California Multifamily Market Report Q2 2022. Avison Young. Retrieved October 10,
2022, from
https://www.avisonyoung.us/documents/14473326/14473583/Q2+2022+-+SoCal+Multifamily+M
arket+Report.pdf/0ddf1293-6502-8bf9-235e-9b55eb7c0388?t=1658858387749
2022 Midyear Multifamily Outlook. (n.d.). Retrieved October 10, 2022, from
https://mf.freddiemac.com/research/outlook/2022-midyear-multifamily-outlook#main-content
2022 Midyear Multifamily Outlook report. Retrieved October 10, 2022, from
https://mf.freddiemac.com/docs/2022-multifamily-midyear-outlook.pdf