Spreads between bond and property yields are generous enough to absorb higher long rates in the short term.
The multifamily sector entered the pandemic on solid footing, and despite challenges brought on by the pandemic, it has the potential to continue to outperform in the years ahead.
Despite treasury yield increases, apartment cap rates are projected to stay low in the next couple of years, supporting an increase in capital values.
Spreads between bond and property yields are also currently generous enough to absorb higher long rates in the short term. The current spread between apartment cap rates and 10-year Treasury yields is 186 basis points, above the 2001 to 2021 average of 200 basis points.
Younger generations saddled with student debt will find home ownership unattainable. And while the recent crisis has led to even more millennials and Generation Z living at home with their parents, they will eventually move out and become a strong pool of new renters.
On the supply side, while the pace of new construction has picked up meaningfully compared to the lows seen a decade ago, this is projected to not be enough to make up for current housing shortfalls. It is estimated that 2.3 million homes are needed each year over the next 10 years to balance the supply/demand imbalance.
This means that rental growth for apartments is projected to continue to outpace inflation, making it a good hedge against the pressure of rising prices.
Provided by Paul Bergeron with GlobeSt.com.