Market Recap:  Sun Belt Dodges the National Multifamily Malaise

Market Recap: Sun Belt Dodges the National Multifamily Malaise

Market Recap:  Sun Belt Dodges the National Multifamily Malaise

Market Recap: Sun Belt Dodges the National Multifamily Malaise

Six fast-growing Sun Belt states now contribute more to national GDP than Northeast

It was just a few weeks ago that housing markets showed subtle signs of its overheating subsiding, renewing hopes for would-be homeowners. Then full stop. The Federal Reserve Bank of Atlanta released updated numbers on 8/16/2023 showing that homebuyers nationally are facing the worst housing affordability since 2006—before the bubble burst. The Atlanta Fed’s “Home Ownership Affordability Monitor”—which factors in income, home prices, and mortgage rates—shows that the annual total payment share of median income for households in America has reached a staggering 43.2%1. Housing is considered “affordable” when housing costs amount to less than 30% of median household income. Meanwhile last week, the average 30-year fixed-rate mortgage hit 7.23%, the highest level since 2001, according to Freddie Mac2.

While that data is discouraging, it also means that DLP Capital’s mission remains more important than ever: to invest in, develop, and finance thriving housing communities that are attainably priced for America’s working families. We strive to provide rental housing that takes up no more than 30% of a family’s income. With more than 8,000 new units in our development pipeline, we’re making a dent. In the meantime, here’s a brief recap of some of the multifamily market dynamics we’re closely monitoring:


Multifamily Malaise—Except in Sunbelt

Multifamily markets remain stagnant amid rising interest rates, slow rent growth—and a continued impasse between buyers and sellers. On one hand, multifamily sellers have been reluctant to lower their price objectives; on the other hand, many buyers are discounting their objectives given fears of a sour economic outlook. The National Multifamily Housing Council (NMHC) saw this clearly when its July 2023 survey showed multifamily sales transaction volume falling for the fifth consecutive quarter. At the same time, NHMC recorded its eighth consecutive quarter of declining debt financing availability, with 67% of respondents saying conditions have worsened for multifamily financings.3

  • Average U.S. multifamily rents rose just $7 in June to $1,726

  • Year-over-year rent growth fell to 1.8%, down 74 basis points from May4

That rent growth marks the lowest rate since 2011 (outside of the pandemic year). While rents may be stagnant, multifamily owners benefited from solid lease-renewal rates. More than 64% of tenants renewed their leases nationally in April, with the highest increases in lease-renewal rates occurring in the Southeast as follows (year-over-year for April)5:

  • Miami 13.8%

  • Orlando 12.2%

  • Raleigh 11.1%

  • Richmond 10.9%

These strong lease-renewal rates compare to an 8.5% rise in renewal rates nationally. Sun Belt markets, in particular, have seen strong rents for Class-B multifamily, as well as employment growth, especially within Florida and the Carolinas.

Real GDP

Sun Belt States Driving GDP

With that positive regional note, we turn to encouraging news. DLP Capital, as you likely know, focuses on the Sun Belt region for its multifamily investments and developments. We were, therefore, delighted to see our convictions, in terms of our regional focus, confirmed by statistics recently out from the U.S. Bureau of Economic Analysis:

Six of the fastest growing Sun Belt states now contribute more to the US national GDP than the Northeast, for the first time since data has been tracked.

Florida, Texas, Georgia, North and South Carolina, and Tennessee are now outperforming the Washington-New York-Boston corridor. This is quite an astounding shift in regional economics, but not all that surprising to DLP Capital. We continue to see business formation in our geographic areas of focus along with positive demographic shifts. The Sun Belt continues to experience high in-migration, lower costs of living, business-friendly environments, and attractive employment opportunities. The superior weather in the Sun Belt doesn’t hurt either.

Both Florida and Tennessee GDPs increased by 3.5% in the most recent quarter of analysis, with Texas and Georgia not far behind at 3% and 2.4% respectively. The financial capital of New York, for comparison, clocked in at only 1.3% GDP. As one economist told Bloomberg, you could throw a dart anywhere at a map of the South and hit somewhere booming. DLP Capital has multifamily investments and/or developments in the pipeline in all six of the fastest-growing Sun Belt states, and we continue to expand into related investment categories such as RV resorts.

So, while there have been 2023 first-half reports of distress looming among multifamily owners in select major metro areas, such as San Francisco where one borrower defaulted on a $448-million loan, the Sun Belt continues on a different tract. Crowning the encouraging statistics was a much-anticipated annual ranking by CNBC of “America’s Top States for Business.” This was not an opinion poll but, rather, in-depth analysis based on 86 metrics in 10 broad categories of competitiveness.

North Carolina came out #1 for a second consecutive year due to its thriving economy, healthy housing market, and stable state finances. DLP Capital established a solid foothold in the state several years ago, with offices in Asheville. Tennessee ranked #3 (after Virginia), and there we have a 312-unit multifamily community under development in proximity to the Dollywood theme park. And in Georgia, which ranked #4, we added to our Peach-State portfolio, fine-tuning our master plan for an exciting new community just north of the Florida border that is expected to include 250+ multifamily units and 600+ RV sites.

In short, while many market multifamily participants have been caught up in short-term flux of late, we continue to seize opportunities for investment. We see strong multifamily fundamentals over the next three to five years in our region of focus, with household formation spurring demand—and the prospects for superior investment returns.

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Risk Disclaimer: Investing in private real estate funds and notes secured by real estate has certain inherent risks, which could result in the loss of some or all of your principal investment. Your decision to purchase and invest should be based on your own particular financial circumstances and investment objectives. DLP Capital Partners, LLC (formerly known as DLP Capital Advisors, LLC), its officers, and representatives can in no way guarantee or warrant your success. Consult your tax advisor or financial advisor before investing. Past performance does not guarantee future performance.

Note: DLP Capital shall not be bound by or held responsible for typographical errors or omissions. In the event of an error, please reach out to DLP via email or phone.

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