Is a Recession Coming? What It Could Mean for Multi-Family Housing

There’s talk of a potential recession, and while no one can predict exactly when or how severe it might be, the economic signs are raising red flags, especially regarding housing affordability.

Here’s some data that shows the growing financial pressure on Americans:

- Auto loan debt is at an all-time high: $1.55 trillion

- Student loan debt has reached $1.61 trillion

- Credit card debt is also a record high: $1.21 trillion

- The average credit card APR has risen from 12.9% in 2013 to 16% in 2021 and now sits at 28.72%

These numbers paint a picture of a consumer economy stretched thin. So, what does this mean for the multi-family housing market?

Homeownership May Become Less Attainable

With debt at historic highs and borrowing costs rising, it is becoming harder for many Americans, especially first-time buyers, to qualify for a mortgage or save for a down payment. For these would-be homeowners, renting may not just be a choice but the only realistic option.

This shift could keep more people in the rental market for longer, extending the average rental lifecycle and increasing demand for multi-family housing.

A Silver Lining for Multi-Family Investors

While affordability challenges are concerning on a personal level, they may also present opportunities for small and mid-sized investors.

- Investors with strong balance sheets and access to financing are in a better position to acquire small multi-family properties and single-family rentals.

- As rental demand grows and homeownership slows, well-located and well-managed rental properties could see lower vacancy rates and more stable cash flow.

- Large institutional investors often focus on large-scale developments, leaving smaller assets to nimble local operators and independent investors.

A Long-Term Shift in the Housing Landscape?

If these trends persist, the U.S. homeownership rate could decline, at least temporarily. In its place, rental housing, particularly smaller multi-family units, may become increasingly important in meeting the nation’s housing needs.

Even though the economy feels uncertain, multi-family housing is usually one of the steadier parts of real estate. For investors, that could mean some solid opportunities.