Integra Realty Resources issued its annual IRR Viewpoint on January 29, when the coronavirus outbreak was still viewed as a Chinese phenomenon. In the intervening weeks, it has become abundantly clear that COVID-19 has the potential to upend the global economy. The question now: how much far will it go?

In these circumstance, predictions about the U.S. economy made before the stock market began falling on February 24 — including the ones in IRR Viewpoint — are outdated, and long-term forecasts, such as IRR Viewpoint’s assessment of the 2020s, will be subject to revision.

Although no sector of the economy will be untouched by the coronavirus, the bright picture the report paints of the multifamily market suggests it will weather the disruption better than most. Here’s how it looked to IRR analysts at the beginning of 2020:

The Multifamily Market Has Legs

The IRR Viewpoint was bullish on multifamily, noting that “Investors continue to pump capital into multifamily assets . . . . Cap rates remain exceptionally low, and the upward trend in pricing has been unabated. The hunt for yield and for solid individual asset stays active.”

The search for yield, the report’s authors noted, had already produced an expansion of activity in the tertiary markets, which reached $27.7 billion for 2019 through November, and had stimulated interest in Southern and Western suburban markets.

The authors of IRR Viewpoint pointed to a number of factors promoting elevated transaction volume. The long bull market in multifamily had encouraged investors to put properties on the market and capture profits. Places like Long Island, Broward County, the Inland Empire, and San Francisco all saw large year-over-year gains.

The fundamentals are in place. Although a few markets like Atlanta and Denver were seeing an oversupply, demand was far from being exhausted. Of the 65 markets IRR covered, they judged 57 were in an expansionary phase of the cycle.

(Figure 1. – Multifamily Cycle Position by Market. Source: Integra Realty Resource’s 2020 Commercial Real Estate Trends Report.)

At the same time, these markets were not overheating. Although cap rates were continuing to compress and valuations rise, loan-to-value ratios and debt-service-coverage ratios reflected careful risk management in the sector overall.

Affordability Is Overstated as an Engine of Multifamily Market Growth

With affordability much in the news, IRR decided to dig deeper into the theory that affordable housing is reshaping housing markets. Much has been made of the migration from high-priced East and West Coast markets to lower-cost markets, supposedly creating downward pressure on places like New York and San Francisco.

(Figure 2. – Population Patterns in the  Top 10 Most and Least Affordable Metros. Source: Integra Realty Resource’s 2020 Commercial Real Estate Trends Report.)

The facts show that affordability in itself is not a driver of population shifts. While Tampa, Atlanta, and Oklahoma City, three cities that rank in the top-10 most affordable metros, grew between 11 and 13 percent between 2010 and 2018, others like Birmingham and St. Louis saw only slight increases in population, and Pittsburgh actually shrank.

At the same time, two metros on the 10-top least affordable list —  Denver and Seattle– posted 15 percent gains —  and even such notoriously unaffordable cities like San Francisco and San Jose saw solid increases of between 8.8 and 9.1 percent.

The absolute numbers also tend to minimize the influence of affordability. The 10 least affordable metros welcomed 3.5 million new inhabitants between 2010 and 2018, up 6 percent. The 10 most affordable grew just 1.8 million, or 7 percent.

Download the report.