Multi-Family Market Lags Behind the Single Family Residential Market

Technical Analysis (TA) cannot be directly applied to Multi-Family or other CRE (Office, Retail, Industrial) in any particular city for a given three-month time period because there are not enough sale transactions to provide a statistically valid sample size/base.

Even if there were enough transactions, that type of data is not directly comparable between periods or markets because of the vast differences in property attributes that may have sold in any particular period.

Having said that, CRE transactional data can be purchased (very expensive) for ONLY a few of the largest cities.

What we did at HousingAlerts was compare that CRE data (separate comparisons for Multi-Family, Office, Retail and Industrial) to the housing market for those few cities where CRE sale data was obtainable in sufficient sample size.

In all comparisons, the housing market rise and decline PRECEDED similar movements in each type of CRE by a few months up to about 18 months. Multi-Family was the most closely correlated to the housing market; Industrial the least correlated… but in ALL cases, there was a significant correlation to what had happened in the SFR market.

If you think about it, that generally makes sense on an intuitive level:

Retail growth/development always “follows rooftops” as they say.

A poor/declining housing market does not bode well for multi family, and a hot housing market means a hot CRE market.

The chart used in the presentation was simply the SFR chart superimposed onto the CRE chart for those few large cities that had data; the advance notice SFR gives, and the subsequent correlation with what the CRE market did is amazing.

So the bottom line is that this SFR data is (in my opinion) the best predictor for what will likely happen in the same CRE market.

Said another way: If I were considering investing in CRE in a market which had a ‘poor’ outlook/performance in HousingAlerts, then I would need to buy that property at a higher cap rate to compensate for the additional risk to appreciation.