Is There an Apartment Market Bubble? via Multihousingnews.com

MHN: In many of the top U.S. markets, apartment pricing appears to have returned to, or be close to, peak levels achieved in 2007. In certain cases, cap rates are once again sub-4 percent. Is there a possibility of a bubble developing in multifamily real estate driven by the low cost of capital, low yields in alternative investments, aggressive projections of apartment incomes in valuation and/or any other factors?

Generally, I do not see a bubble in the for-rent apartment housing market at this time, but it is on the horizon with arrival dependent upon the relationships between supply and demand and interest and cap rates for each market. This is really nothing new; it is, after all, a cyclical business.

The strong apartment market fundamentals over the past two years, when coupled with low interest and cap rates, have resulted in values improving substantially from the trough. While this has aided operators, investors and lenders in recouping most of their losses from the downturn, it has also stimulated interest in the asset class, resulting in prices being bid up for existing properties and making development more financially attractive. This is a good thing.

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