Sun Belt Multifamily Continues to Perform Despite Some Cracks in Market Fundamentals

Morningstar DBRS published a commentary reviewing multifamily performance in the U.S. Sun Belt region. During the recent period of high inflation, high interest rates, and a record amount of inventory in the region, market fundamentals in the Sun Belt showed some signs of softening. However, despite all this, multifamily performance in the region has held firm and the majority of properties have remained current.

Key highlights include the following:

-- A more favorable environment has arisen for multifamily property performance in the Sun Belt as a result of improved consumer sentiment, the Federal Reserve's interest rate cuts totaling 100 basis points, lower inflation, a low unemployment rate, and persistent home affordability issues.
-- Despite record inventory, there was rent growth in 49.2% of the Sun Belt markets covered by Reis between Q2 2023 and Q3 2024, while the remaining markets saw rent declines. The maximum rent declines were 10.5% of the Q2 2023 asking rents in certain markets.
-- There were fewer transfers of non-agency multifamily loans in the Sun Belt to special servicing compared with transfers outside the Sun Belt. In the last 10 years, only 39.3% of multifamily transfers have been from the Sun Belt region.

"With the economic environment improving and the Federal Reserve announcing rate cuts, we anticipate continued stable performance for Sun Belt multifamily properties in the near term, as they have proven their resilience even within a high interest environment and with a huge amount of new supply entering the market," said Russel Dsouza, Sector Specialist, North American Real Estate Ratings.