Is Multifamily Strong or Not ?
In many U . S . regions , the multifamily sector is very strong partly since so many tenants can ’ t afford to buy homes nearby that are currently priced at alltime record highs . In other regions , multifamily apartment landlords may be struggling with significant financial losses .
The multifamily apartment mortgage default rate has quadrupled over the past year , according to Freddie Mac . Last year in 2024 , and the year before in 2023 , and through at least 2025 , more brand new apartment units will be completed and available for lease than at any other time since as far back as 50 + years ago in 1973 . Multifamily apartment landlords across the nation are defaulting on their mortgages with decadehigh rates in states like California , Texas , Florida , and elsewhere .
Some of the main factors why multifamily apartment mortgage default rates are rising are as follows :
1 . The owner ’ s existing mortgage rate may have increased by 100 % or more after their previously 3year , 5year , 7 year , or 10year fixed rate converted to a new adjustable rate at today ’ s much higher mortgage index . As a result , the once positive monthly cash flow turned negative due to the higher mortgage rates and payments .
2 . Rising vacancy rates as fewer tenants could afford rapidly increasing rents in many of these apartment building locations found in various metropolitan regions .
3 . In other regions , the vacancy rates had increased so much that landlords had to drop their rent prices which , in turn , turned monthly profits into losses .
4 . Skyrocketing costs for various types of landlord insurance or umbrella insurance policies as well as increased litigation costs from unhappy or injured tenants .
The multifamily market is projected to add or deliver another 574,000 new apartment units in 2024 alone , according to an analysis shared by the CoStar Group . As a result , future rent prices may start falling as the available supply exceeds the demand .
UpsideDown Office Buildings
Almost 45 % of all office buildings nationwide that are leveraged with debt are upsidedown or underwater where the existing mortgage debt exceeds the current market value , according to sources like ZeroHedge , Bloomberg , and Morgan Stanley . Some office buildings are now selling for as low as $ 9 per square foot , not $ 900 / sq . Ft .
An eyeopening example of how massive some of these commercial property prices have plunged was in the April 2024 sale of the 44story AT & T Center office building in St . Louis , Missouri . Back in 2006 near the previous real estate bubble peak , the same building sold for $ 205 million dollars . In April , this property sold for just $ 3.6 million , which was a staggering 98 % value drop .
The multifamily apartment mortgage default rate has quadrupled over the past year , according to Freddie Mac .
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