In the latest episode of The REIT Report: NAREIT's Weekly Podcast, Britton Costa of Fitch Ratings discussed how developments in the housing and mortgage markets are affecting the multifamily REIT sector.
Costa described Fitch's outlook for the housing market this year as "fairly positive." Prices for single-family housing should approach previous market highs, according to Costa, but the underlying values will be more sustainable.
The multifamily sector's outlook is strong as well, the "best-gowing sector relative to all other commercial real estate asset classes," Costa said. However, given the high level of supply of apartment buildings now available, it does raise questions about the sustainability of the sector's recent run of solid performance.
Costa said Fitch has zeroed in on the credit markets as the key driver related to multifamily operating performance.
"Credit expansion matches the homeownership rates' fluctuations pretty well," he said.
The lack of non-agency securitizations has held up home mortgage lending, according to Costa. "There just isn't the same level of mortgage capital available to the ordinary buyer today," he noted.
Costa also addressed the impact of the government-sponsored enterprises (GSEs) on the multifamily market. He pointed out that Fannie Mae and Freddie Mac played an important role in the market during the financial crisis by providing liquidity, and he noted that policy discussions regarding the future of the GSEs have quieted lately.
"Our belief is that the status quo will remain for the time being, and that's to the benefit of multifamily REITs," Costa said. "We think REIT ratings are a notch higher than they would be if the GSEs weren't providing that countercyclical liquidity."