Experts See Challenges and Lukewarm Start to the 2024 Residential Real Estate Market

By Aspire Economic Development + Chamber Alliance | | 3.21.24

The real estate market, particularly in the multifamily residential industry, is facing challenges as 2024 unfolds. Senior Broker at Bradley Company, Sam Karozos, and Land Acquisition Manager at Buckingham Companies, Gabrielle Rubenstein, shared insights into the current state of the market and its trajectory for the rest of the year.

Market Performance in 2023 and Early 2024

According to Sam Karozos, the multi-family residential market saw a decline in new construction starts towards the end of 2023, a trend that has persisted into 2024.

"The best projects with the highest rents in the best areas are moving forward,” said Karozos. “Any other new developments are being highly scrutinized."

He mentioned the prevalent hesitance in the market, attributing it to factors such as high construction costs and the lingering impact of high interest rates.

Gabrielle Rubenstein echoes similar sentiments, stating that the multifamily residential market experienced challenges in 2023 due to higher construction costs and tightened lending standards.

However, she notes a shift in market dynamics, with Midwest markets, particularly the Indianapolis metro, leading to rent hikes.

“Over the past few years, Sunbelt markets have been the crown jewel of multifamily investment,” said Rubenstein, “but now we’re seeing the Midwest markets are leading the pack in rent growth with the Indianapolis metro ranking #6, at 3% year over year rent growth according to the February Yardi Matrix Multifamily National Report.”

Expectations for 2024

Karozos expresses that the market's performance in 2024 has been slightly worse than anticipated.

"With rates likely remaining 'higher for longer', cost of capital and construction costs continue to wreak havoc on projects in the pipeline." He said. Despite this, some deals are still being completed, albeit with developers using the phrase “survive until ‘25’”.

Rubenstein's expectations for 2024 align with the challenges observed late last year. She acknowledges the difficulty in getting multifamily deals across the finish line due to macroeconomic conditions but mentioned that some developers are still making progress.

“Experienced developers with desirable locations that provide proximity to major employers, retailers, great school systems, and outdoor amenities are still breaking ground in 2024,” she added.

Factors Influencing Market Trends

Both experts agree that factors such as high construction costs, elevated cost of capital, and tighter lending standards persist as challenges in 2024. Rubenstein notes that despite a slight tempering in construction costs, they remain high.

“With record breaking new multifamily construction starting in 2021 and 2022, new supply coming online will continue to put pressure on rents and lease-up timelines, albeit dependent on each submarket's inventory growth,” said Rubenstein.

However, amidst these challenges, Rubenstein remains cautiously optimistic, citing strong demand for rental housing driven by the inflated cost of homeownership.

She anticipates an eventual increase in development by the end of 2024 or early 2025, which could alleviate supply pressures. “Specific to Johnson County, its desirability will continue to keep rental housing demand strong.”