Multifamily Property Prices Increase in May, But Not By Much

By Anuradha Kher, Online News EditorNew York–Multifamily property prices are up 0.6 percent for the month of May, reporting the highest annual return (+5.8 percent) among all commercial real estate property types, according to Standard & Poor’s recently released results for the S&P/GRA Commercial Real Estate Indices.The results revealed however that the May number for the increase in property prices is a marked deceleration from the +7.7 percent reported just two months ago.“The multifamily sector is well off its peak and this has to do with the slowdown in the housing market in general,” Maureen Maitland, vice president, Index Services at S&P, tells MHN. “This sector, too, has started to follow the trend of the overall housing market.”While the decrease in May looks like a negative development, Maitland points out that she would not make much of it. “The numbers are volatile from month-to-month and vary based on when investors think is a good time of the year to buy. We need a few more months to determine whether or not it is a down cycle,” explains Maitland.Nationally, commercial real estate prices overall are up +3.6 percent versus May 2007, with the multifamily sector leading with the highest annual return.“All the other property types have not seen negative growth for the last 10 years and have continued to grow in double digits over the last few years. They are now on their way down, whereas apartments have seen negative growth in 2007 and are now on their way up. So they are in different phases of their cycles, which partly explains why multifamily is doing better than all of them,” Maitland notes. She is, however, quick to point out that the situation with Fannie Mae and Freddie Mac could possibly put a lot of sales on hold as investors stop seeing expected incomes from their properties due to lack of demand cause by lack of financing. “There will likely be an impact on pricing and volume in the multifamily sector,” says Maitland.David Wyss, S&P chief economist, continues to be upbeat about multifamily housing. “In general, the demographics are in favor of multifamily. Also, I am a pessimist about oil prices, which is another reason that demand for multifamily will keep going up,” he tells MHN.Wyss believes that overall there is an excess supply of multi-housing but not as much as single-family housing. “Basically, I think the forecast for multifamily is less weak than single-family housing,” he concludes.