Economist Linneman is bullish on multifamily, offers litmus test for recovery

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Against the backdrop of the COVID-19 pandemic, economist Peter Linneman this week explained why single-family home sales have performed better than he’d expected and some reasons he’s bullish on multifamily.

Linneman offered an economic analysis and some predictions during Wednesday’s Walker Webcast: Magic 8 Ball for the Markets, hosted by Willy Walker, chief executive officer and president of Walker & Dunlop.

Linneman previously predicted that the COVID-19 pandemic would torpedo home sales, and while sales indeed dropped in April and May, it wasn’t the collapse that the economist initially anticipated.

He said his earlier assessment missed the phenomenon of “involuntary savings,” which led people to scrap vacations, skip paying for parking while working remotely, and grab refunds on concerts canceled due to COVID.

“And when you go through the math, in six months of savings, largely involuntary savings, people had a down payment that would have otherwise taken them two or three or four more years to get,” said Linneman, principal and founder of Linneman Associates.

Explaining why he’s bullish on multifamily, Linneman said the involuntary savings that’s helped people secure down payments for homes is likely to dwindle as the pandemic recovery continues.

“You go back more to the world we knew, which is ‘I can’t save enough; it takes me forever to save because I try to live a high lifestyle,” he said.

Another buoy to multifamily is an influx of young people into the rental market — people who just don’t have enough savings to buy a home. Linneman also predicted that apartment strength will skew toward the suburbs for the next couple of years but that it doesn’t mean everyone is leaving the city.

Over the next decade, Linneman said, asset price inflation is likely to outstrip wage growth, again making it difficult for prospective home buyers to foot a down payment.

“I think single-family does OK — it’s not like I think it’s awful — but multi is well-suited, he said.

As for gauging the economic recovering from the pandemic, Linneman offered a litmus test that football fans may find particularly handy.

“Watch NFL attendance,” he recommended. “And I don’t mean just this year, I mean, even if you’re not a fan of the NFL, turn it on and see how many people are in the stadium, this year and next year. And when they’re back, we’re back.”

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