CALCAP CONNECTIONS

May 2024

Principal's Corner

Apartment Transaction Volume Remains at Historic Lows

Investments in U.S. apartments continued to decline in the first quarter of 2024 amid the high cost of borrowing and economic uncertainty. Although the asset class remains an attractive commercial real estate investment, sales have fallen well below pre-pandemic levels.

According to MSCI Real Capital Analytics, nearly 1,040 apartment properties changed hands at a value of $20.6 billion during the first quarter of 2024. The overall sales volume during the quarter was down 25% from the first quarter of 2023, while the number of properties trading hands was down 26% during the same period. This was significantly below the fourth quarter of 2021 peak, when around 5,400 properties changed hands for more than $166 billion due to pent-up demand following the onset of the pandemic.

Recent activity was also well below the $42.2 billion quarterly average during the five years leading up to the pandemic (2015-2019). Prior to the pandemic, the value of quarterly apartment transactions had not fallen below $21 billion since the first quarter of 2014! The average price per unit was $190,184 in Q1. While still above pre-pandemic levels, this is down 6.5% year-over-year and the lowest level in three years. By comparison, per unit pricing from 2015 to 2019 averaged roughly $151,000.

Meanwhile, cap rates for apartment transactions in the first quarter of 2024 were up 50 basis points year-over-year, averaging 5.7%. That was the highest cap rate in nearly eight years. Despite this increase, multifamily cap rates during the first quarter remained the lowest among major property types.

Edward M. Aloe

President and CEO

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Latest Headlines...

Pending home sales slowed considerably in April: NAR

High mortgage rates serve as the biggest impediment to sales, according to NAR chief economist Lawrence Yun

New-home sales, which are also based on contract signings, fell 4.7% month over month and 7.7% year over year in April, as the supply of existing homes increased and high mortgage rates hampered demand. Existing-home sales also declined last month to a seasonally adjusted annual rate of 4.14 million. But active inventory rose 30.4% in April compared to the same time last year, according to Realtor.com data.

In March, U.S. home prices continued to climb, with the S&P CoreLogic Case-Shiller U.S. National Home Price Index recording a 6.5% annual gain, matching February’s growth.

“Home prices are hitting record highs, but the pace of gains should decelerate with more supply,” Yun said. “However, the prospect of measurable home price declines appears minimal. The few markets experiencing price declines will be viewed as second-chance opportunities for buyers to enter the market if those regions continue to add jobs.”

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Airbnb wants more renters to get in on hosting

A growing number of apartment buildings nationwide are allowing tenants to bank extra cash by hosting on Airbnb.

Why it matters: Rental affordability has plunged in recent years, and those who rent are feeling especially poor about their finances, according to the Axios Vibes survey by The Harris Poll.

Between the lines: Many landlords don't permit short-term rentals, but some big names including Greystar and Sentral have joined Airbnb's apartment platform.

Apartments accounted for about 16% of U.S. Airbnb listings in April 2024, per AirDNA, a short-term rental analytics firm.

How it works: In 2022, Airbnb launched Airbnb-friendly apartments (AFA), a marketplace to help renters find apartment buildings where they can use their primary residences for part-time hosting.

The platform grew last year to include more than 400 apartment buildings across 43 markets nationwide.
Buildings that partner with Airbnb receive a share of the total booking revenue, typically between 5% and 25%.
Roughly 1,000 U.S. renters are currently hosting through the program, a number Airbnb hopes to boost.

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Mortgage demand slides to lowest level since early March

Mortgage applications fell by 5.7% week over week

“Mortgage rates increased for the first time in four weeks, with the 30-year fixed rate up to 7.05%and all other loan types also seeing increases. The uptick in rates led to a decline in mortgage applications heading into Memorial Day weekend,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement.

Overall, Kan noted that both purchase and refinance applications fell, pushing overall activity to the lowest level since early March.

Purchase loan application volume decreased by 1% from one week earlier, while the refinance application fell by 14% week over week.

“Borrowers remain sensitive to small increases in rates, impacting the refinance market and keeping purchase applications below last year’s levels. There continues to be limited levels of existing homes for sale and many buyers are struggling to find listings in their price range that meet their needs,” Kan added.

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On the lighter side...

About CALCAP Advisors

About CALCAP

California Capital Real Estate Advisors, Inc., and its affiliate entities (CALCAP Asset Management, CALCAP Properties, CALCAP Lending, CALCAP Senior Healthcare, and CALCAP Strategic Opportunities, collectively known as “CALCAP”), is a California-based investment company founded in 2008 and headquartered in Pasadena, California. The Company sponsors alternative real estate investment opportunities focused on demographically driven housing. CALCAP has been able to consistently provide both individual and institutional investors with outstanding returns over the last 14 years. The Company uses a highly selective and disciplined investment approach, focused on delivering superior risk-adjusted returns. CALCAP currently has over $650mm in Assets Under Management. To learn more visit www.calcap.com.

Social Mission

CALCAP CARES is a 501(c)(3) private foundation organized to encourage employees to find a way to give back to the neighborhoods where we invest. CALCAP has created "GiveTime4Autism" as its initial program which gives employees the opportunity to donate unused vacation and sick days for a very worthy cause.