Many people are worried that the multifamily real estate market may be heading towards a bubble. A bubble is an economic term that refers to the price of a commodity being inflated due to increased demand, rather than increased financial performance.
Currently, the multifamily real estate industry is relying on major markets for development activity. However, if this development trend starts to transfer into smaller markets, worries about the multifamily real estate industry entering bubble territory may become valid. Major markets have been investing millions into the development activity of the multifamily real estate industry, meaning small market involvement may result in unexpected contraction during a time of expansion.
Many experts say the strength of the apartment industry is why the multifamily real estate industry is not currently in bubble territory. With the recently put in place Federal Reserve low interest rate policy, the apartment industry is experiencing artificial growth in a sense. When interest and capitalization rates begin to balance out and rise, issues may arise.
One thing most experts are sure of is that the multifamily real estate industry is doing better than it was in past years. While permit numbers are on the rise, there is still room for improvement. It is apparent that construction demand is on the rise. In order for the multifamily real estate market to avoid entering bubble territory, small markets must refrain from becoming involved. It will take time to see how worries about entering bubble territory play out.
Contact Ed LaCivita or Craig Sullivan at Parkwest General Contractors for all of your commercial and hotel construction needs. We can guide you in your construction projects and make sure that your hotel is secure in the Western U.S.