The Market Update


Housing Market Heats Up

Housing is emerging as a hot sector in the consumer-led economic recovery. Mortgage applications for new home purchases increased by 33.3% year-over-year in August, according to the Mortgage Bankers Association. Existing home sales were up 8.7% year-over-year in July, according to the National Association of Realtors. Single-family home sales are being tempered by limited supply, which should drive new construction in the coming months.

The multifamily sector also is performing better than expected. August vacancy averaged 4.4%, the same as in March just before the COVID-19 downturn took hold. Effective rents have dropped by only 1.3% since March. The vast majority of residents are making their rent payments. The National Multifamily Housing Council reported that full or partial rent payments for August were 94.5%, only 1.3 percentage points below the prior year.

The student housing market also appears to be holding up better than expected during the COVID-19 downturn. See our detailed assessment of the student housing sector below.

Spotlight on Student Housing

Renewed Investor Interest Expected

  • A modest decline in college enrollment is expected this year, with Tier I and Power 5 schools likely not down at all. A rebound in enrollment is expected next academic year.
  • The slight drop in enrollment is partly due to some students taking a gap year and to far fewer new international students. However, the Institute of International Education reported this spring that most of the more than 1 million international students remained in the U.S. and are returning to school.
  • College enrollment is somewhat countercyclical to economic conditions. A weak economy helps keep some students in colleges and attracts others due to limited job opportunities.
  • Many colleges are offering a hybrid structure of online and in-person classes. At most schools, on-campus classes can also be accessed remotely.
  • While not all colleges have begun their fall terms yet, those that have opened report a very high percentage of students returning to their college towns. RealPage Analytics reports that as of August, 88.3% of the total beds at 175 universities were preleased for the fall semester, down by just 3.4 percentage points from a year ago.
  • Reduced supply of on-campus housing is helping off-campus market fundamentals. Colleges are de-densifying on-campus housing due to COVID-19 safety mandates. Furthermore, most schools have designated some of their on-campus housing for potential quarantine space. Notably, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, advised schools not to send COVID-infected students back to their hometowns to avoid spreading the disease.
  • Student housing investment volume in the first half of the year totaled nearly $1.7 billion, down 40% from the prior year, according to Real Capital Analytics. Most of this activity occurred in Q1. Only a handful of assets that had earnest money deposits pre-COVID-19 have proceeded to closing. During Q2, U.S. student housing investment totaled only $125 million.
  • Investors and lenders moved to the sidelines this summer due to the uncertainty about how universities would operate in a COVID environment. However, with many universities up and running again and many students back in college towns, transaction and lending activity has returned.
  • CBRE believes that the student housing investment market will return this fall and that pre-COVID-19 pricing will remain intact. University openings, positive leasing momentum and healthy collections will result in strong fundamentals. In a historically low interest rate environment, this will provide attractive investment opportunities long before many other product types recover from the COVID-19 downturn.

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