Multifamily housing proposal activity surges in Q3 2024

The most striking statistic from the PSMJ Quarterly Market Forecast Survey results for the third quarter is the massive leap in proposal activity for multifamily housing. After falling to the middle of the pack of the survey’s 59 submarkets for several consecutive quarters, the Multifamily for Rent sector surged into the Top 10 with a net plus/minus index (NPMI) of 48.0.

The NPMI number represents the difference between the percentage of respondents who report growth in proposal opportunities for a market or submarket and those who see a decline. For the recently completed third quarter, 60% of respondents indicated an increase in multifamily proposal activity, while only 12% noted a dip. This is a major shift from the prior quarter, where 40% reported growth and 28% saw a decline.

PSMJ President Greg Hart cautions that it’s too early to determine if this is “statistical noise” or the beginning of a sustained trend. Census data and news reports suggest it could be a temporary spike, but since the QMF survey captures the earliest stages of project interest, this result may signal a broader market shift.

Due largely to the performance of the Multifamily submarket, the overall Housing market climbed to the second-best among all 12 major markets surveyed, achieving an NPMI of 55.3. An impressive 63.8% of respondents reported improved proposal activity within the Housing sector, with only 8.5% noting declines.

Multifamily: An Unexpected Resurgence

Multifamily housing is benefiting from several external factors that have generated renewed interest in the rental market. With homeownership increasingly difficult due to high mortgage rates and elevated property prices, more people are opting to rent. According to CBRE's Multifamily Report, rising interest rates and affordability challenges are shifting demand from single-family home ownership to rental options, boosting multifamily construction activity.

Additionally, PSMJ's data shows a quarter-over-quarter NPMI rise of 36.9 for the multifamily submarket, which had an NPMI of only 11.1 in Q2 2024. Year-over-year, the NPMI improved by 18.7 points, reflecting an increased focus on multifamily rental development as demand for urban living remains robust. This aligns with recent reports from the National Association of Realtors highlighting how multifamily properties are an attractive investment given sustained high occupancy rates and rental growth.

Senior/Assisted Living and Condominiums: Slower Growth in Housing Submarkets

Not all Housing submarkets performed as strongly as multifamily rentals. The Senior/Assisted Living submarket experienced a slowdown, with an NPMI of 15.4 for Q3 2024, down from 33.8 in the previous quarter and 31.0 in Q3 2023. This quarter-over-quarter decline of -18.4 and year-over-year drop of -15.6 suggest that while demand for senior housing exists, funding and operational challenges are dampening project proposal growth. The National Investment Center for Seniors Housing & Care (NIC) says that the costs associated with senior living developments, coupled with rising operational expenses, are leading some developers to delay or scale back projects in this submarket.

Condominium development saw some gains, with an NPMI of 11.1 in Q3 2024, up from -6.0 in Q2 2024 and 3.5 in Q3 2023. This quarter-over-quarter increase of 17.1 points highlights renewed interest in the condo market, although it remains a relatively modest gain compared to the performance of multifamily rentals. Real estate experts note that while condominiums are gaining traction as an ownership option for those priced out of single-family homes, economic uncertainty and rising interest rates are tempering rapid growth in this sector.

Overall Housing Market Growth

The overall Housing market, bolstered by the Multifamily submarket's impressive gains, saw a quarter-over-quarter increase of 40.6 and year-over-year rise of 40.2. PSMJ data indicates that despite economic headwinds, housing continues to be in high demand, especially as population growth and urbanization trends persist.

Broader Industry Metrics: A Mixed Picture

Across all markets, overall proposal activity was modestly positive in Q3 2024. The Overall Proposal Activity NPMI registered 26.7, a slight improvement from 23.0 in the previous quarter and 25.5 better, year-over-year. Similarly, backlog levels saw minor improvements, although Projected Revenue for the next quarter dropped sharply to 11.1, representing a decline of 30.2 points from the previous quarter and a year-over-year decrease of 12.3. This may indicate some forward-looking caution in the market, as firms remain wary of economic volatility and potential interest rate hikes.

Conclusion: Multifamily's Surprising Momentum

The multifamily rental market’s strong Q3 2024 performance is an encouraging sign for the Housing sector. Rising interest rates and affordability challenges in homeownership are redirecting demand toward rentals, leading to increased proposal activity for multifamily housing projects. While uncertainties remain, particularly interest rates and the overall economic outlook, the housing market as a whole appears to be regaining some solid footing.

The PSMJ Quarterly Market Forecast Survey assesses 12 major markets and 59 submarkets. The research, publishing and consulting company dedicated to the design and construction industry has been conducting the QMF since 2003. You can learn how to access the data or participate in the survey by visiting https://www.psmj.com/surveys/quarterly-market-forecast-2