There is no doubt that the tides have shifted in multifamily. The number of transactions have significantly decreased since 2022 Q1 & Q2 activity illustrating how quickly most markets have swung from a seller’s market to one of a buyer’s. Most people look to the rise in interest rates as evidence of this change, but there are two other factors which I believe that shed more light into the severity of this change.
First, if you know me at all you know that I am an advocate for knowing the granular details as well as the macro ones. This is because it is at the “ground floor” where you often see the changes that the top floor corner office doesn’t notice until it is too late. This often results in a reactive response instead of a proactive one…but, I digress. When looking at the ground floor it is evident two businesses have been majorly impacted: construction and brokerages.
It was not too long ago you could not get most contractors to return your call. Between demand and chain supply issues, contractors' hands were tied with too much work and not enough materials or labor to fulfill the requests. Costs surged both as a result of the material shortage and demand making it a very difficult time to execute renovation and development. One example of this is seen in the lumber futures. On September 2, 2022 it sat at $485.50 per thousand board feet, which is a stark contrast to the all-time high of $1,670.50 per thousand board feet of lumber (Source WSJ). Despite this drastic change in material pricing, demand seemed to have dissipated. To me this is very evident in the recent influx of calls I have recently received from contractors looking for work and running promotions to provide further incentives.
Another ground floor change is the number of brokers who recently started calling to ask if I am still in acquisition mode (which for any brokers out there, the answer is YES! I ALWAYS AM!) This is a dramatic change from Q1 when so many deals were being offered that often brokers did not even have time to make official Offering Memorandum marketing packages. Despite the fact that Q3 2022’s multifamily transaction reports have not been issued by major outlets, I already know the tide has pulled out to sea.
These changes do not scare me. Maybe it is because I am not surprised by them, maybe it is because I understand market cycles and shift our strategy accordingly, or maybe it is a combination of the two. As the market continues to change, always be on the lookout for what is going on at the ground floor…it is only there that you can see the foundation of the change that is about to occur.
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