Buyer demand for apartments at highest level in 6 years: RPT

Willy Walker, CEO of Walker & Dunlop, joins Yahoo Finance the discuss the outlook on the real estate market as rental prices are on the rise.

Video transcript

ALEXIS CHRISTOFOROUS: Housing prices appear to be pushing prospective buyers into rentals until the housing market cools off. But for many, even the rental market has become too hot to handle. Here to talk about it is Willy Walker, CEO of Walker & Dunlop. Willy, good to see you again. So tell us what you're seeing in your business in terms of demand for these rental properties right now.

WILLY WALKER: Demand is very strong. I would say that the great sort of suburban migration that took place a year ago during the depths of the pandemic to a great degree has ended. And that major cities across the country are seeing people come back to them. And that we're seeing very strong rent growth pretty much across the board in the multifamily industry. Even in some cities that were extremely hard hit during the pandemic, such as New York and San Francisco.

ALEXIS CHRISTOFOROUS: Talk to me more about that. Because just anecdotally, I know people who were looking for those rental deals that were abundant during the height of the pandemic just a few months ago. What has happened to those deals? I mean, has it quickly become the landlords market at the moment?

WILLY WALKER: I guess there are a couple of things to keep in mind. The first one is that the single family world can't build houses fast enough to meet demand. And as a result of that, the cost of the existing inventory of single family homes is inflated tremendously, which is pushed that stock of inventory above many people's price points. There isn't a lot of new deliveries. And the new deliveries are being sold at a much higher price point.

So that's quite honestly keeping many, many people in multifamily properties. And as people are going back to work and going back to the office, people are looking to get closer to the office. And as you've seen in many instances, CEOs across the country are saying you're either back in the office by X day, or you're not working for our company anymore. And so I think that there has been a big shift in the market from single family back towards multifamily. And that is also allowed for occupancy levels to come back, and rents are being pushed.

ALEXIS CHRISTOFOROUS: What about your business in particular? I saw sales activity up nearly 650% in Q2 year over year. And tripled from pre-pandemic from Q2 of 2019. That's some incredible robust demand, Willy. Do you expect that to continue this quarter and in subsequent quarters?

WILLY WALKER: As we said on our call the week before last, we actually do the pipeline as it relates to our sales business on apartment buildings is exceedingly robust right now. And I think what you have to keep in mind there is that there are five commercial real estate asset classes. There's office, retail, industrial, multifamily, and hospitality. And during both the great financial crisis as well as through the pandemic, multifamily and industrial have held up exceedingly strong. And so as investors are waiting to figure out whether they want to go and invest in an office building, invest in retail, or invest in a hotel, there has been a consistent amount of demand to buy multifamily properties as well as industrial properties. And so that is, of course, this huge surge in demand for multifamily properties. And in our business of selling those properties.

ALEXIS CHRISTOFOROUS: What might trip up that demand? Is it going to be higher interest rates? And we know the Fed is already telegraphing that could certainly happen starting in 2022.

WILLY WALKER: Yes, super interesting to listen to your past-- a number of your past panelists that I listened to this morning. I would say it's interesting to look at where rates are today at a 125 10 year. That's significantly lower than many people had expected where the 10 year would be. I would say if you look at something like lumber prices, lumber prices peaked at over $1,550 per 1,000 board foot back in May. Today, it's all the way back down to lower than $500 per 1,000 board foot.

And so what Jerome Powell has spoken about quite consistently of these inflationary pressures being transitory, lumber started the year 900, went up to 1,500, is now down below 500 per 1,000 board foot. And so I think we're seeing that as capacity is coming on into the markets, some of these heightened and really, really exorbitant inflationary pressures come for a period of time. And then they work their way out of it. And so I would just say that as it relates to rates moving dramatically, or the Fed having to move much more quickly, so far the playbook that Jerome Powell has put forth as far as many of these inflationary pressures being transitory is playing out in a lot of things that we're watching.

ALEXIS CHRISTOFOROUS: And finally, Willy, is this a geographic thing? Or is this a phenomenon you're seeing across the country? Because we've got the Delta variant now running rampant especially in southern states. I'm curious if you're seeing demand strong in most parts of the US right now.

WILLY WALKER: Yeah. I mean, so much of it is jobs based. And so what you're seeing is that many of those economies that were relatively open during the pandemic have continued to kind of surge forward. So Nashville, Tennessee is an extremely strong market. Most of the Texas markets are all very, very strong. And so what you're seeing is a lot of job growth in those markets. And as a result of that multifamily and multifamily supply has been picked up very, very quickly. But as I said at the top of the interview, even markets like New York and San Francisco are seeing renewed interest and renewed lease rate inflation, if you will, in the sense of landlords are able to now start to push rents again.

And I think one of the big outliers right now, or one of the things we're focusing on is, how long does the extension of the eviction moratorium stay around for? And then the other one is September 6th, and the $300 per week supplemental unemployment insurance going off will have a big impact on the labor market. And I think that that will then play into the inflationary numbers that everyone's watching so closely.

ALEXIS CHRISTOFOROUS: All right. Willy Walker, CEO of Walker & Dunlop. Thanks so much for your time today. We appreciate it.