A depressing combination of declining demand and continued high interest rates is serving to hamper the nation’s apartment industry, according to an exclusive just published by the New York Times.
The publication notes that rental building owners are particularly feeling a crunch across the states of the Sun Belt, reporting that while the number of owners no longer making payments on their mortgages remains low, “analysts worry that as many as 20% of all loans on apartment properties could be at risk of default.”
Currently, less than 2% of such loans are 30 days or more delinquent. That figure is particularly striking when compared with rates of up to 7% for office building loans, and 6% for retail space and hotel loans.
The paper continues: “Industry groups, rating agencies, and research firms are worried that many more apartment loans could become distressed.”
The potential for trouble has also been observed by the company Mortgage Professional America, a mortgage industry information service, which noted last week that the reason for the Sun Belt worries is simple: that’s where “many developers built apartment complexes to meet expected demand during the pandemic.”
But the Sun Belt influx of new residents, continues the MPA in a news analysis, has slowed since the initial year of the Covid 19 outbreak, “leading to an oversupply of luxury apartments.”
In a survey of some 19 Sun Belt cities that included Atlanta, Miami, Austin, and Phoenix, it was noted that a record total of 216,000 new units were completed last year, “but demand fell to 95,000 renters.”
While investors may currently be nervous thinking about where the apartment market is headed, industry professionals note that apartment building projects can be financed through both the Federal National Mortgage Association as well as the Federal Home Loan Mortgage Corporation, providing a safety net not provided to all real estate sectors.
Meanwhile, the number of new apartment building projects has seen a late spring decline. According to the National Association of Home Builders, the number of apartments under construction in May had fallen to 914,000. That’s the lowest count recorded since September of 2022, and a significant 11% drop from July of last year.
By Garry Boulard
Image Credit: Courtesy of Unsplash
