While the multifamily market might be the hot commercial real estate sector right now, Fitch Ratings, New York, sees a number of clouds on the horizon, including a loosening of lender underwriting standards and the future of Fannie Mae and Freddie Mac.
Fitch said multifamily lenders in some instances have resumed using underwriting standards that were common during the bull market, which depend on low interest rates at the time of refinancing to maintain capital values.
"Rising interest rates or a failure to achieve underwriting assumptions due to pressures related to rental affordability could create the difficult refinancing conditions other property sectors encountered in 2008-2011," the rating agency said.
As for the government-sponsored agencies, if there was a disruption to the liquidity they provide to the multifamily marketplace, it is unlikely the other commercial real estate lenders (especially life insurers) would be able to absorb the demand given balance sheet constraints and concentration limits.
Still demand for multifamily housing units by consumers should remain high for the foreseeable future unless some plan comes about "that meaningfully changes the dynamics of home ownership and the current headwinds," or until prices rebound, Fitch said.
