Despite the disruptions of 2020, Freddie Mac expects the multifamily market to see improving conditions in 2021. The year will not be easy, with unemployment remaining high and rents in the largest markets expected to remain depressed during the year. The vacancy rate is also expected to increase nationally, but significant rent declines are expected to flatten, and more markets are expected to see rent increases than not. With the roll out of vaccines and additional stimulus legislation, the job market should rebound throughout the year, leading to greater housing demand. All in, long-term fundamentals of multifamily housing are still on solid ground and demographics favoring rental housing point to sustained long-term demand.
Multifamily loan originations are expected to rebound in 2021 after 20% declines in 2020. The first quarter of 2020 started with strong origination volume, then saw a sharp decline as the effects of the virus took hold in the second quarter. Freddie saw a pronounced increase during the second half of the year, at least partially fueled by record low interest rates and rent collections holding up better than expected.
Despite virus-related headwinds, rent growth projections for 2021 look significantly better than 2020. Rent growth started out 2020 positive in the first quarter, then fell 0.8% during the second amid pandemic lockdowns. As economic conditions modestly recovered in the third, the rent decline slowed, with rents at just 0.1% below second-quarter levels. Looking into 2021, Freddie expects nearly half of all metros will have positive rent growth.