I'm pulling from a combination of sources for this one and I'd like to get everyone's thoughts. Sources: friend at a top REPE fund, online discussions, personal observations.

I recently moved from Denver to North Carolina and had some drive time to collect my thoughts. During my several years of living in Denver, housing prices not only skyrocketed, but also apartment and multifamily (MF) building exploded. The residential market is crazy competitive with people paying way above asking price (often in cash). One thing that really became apparent during our last months was that a lot of these luxury apartment buildings were sitting 3/4 empty - but they keep building and building.

I have been told that there are similar situations in Austin and Nashville. The RE market in LA and SF has been totally out of whack since 08 and all of the foreign money is gobbling up properties.

Here are a few other discussions (from WSO and a few other forums I follow)

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In the last 60 days I've seen so many deals fall out. Not just mine but other brokers across several asset classes. Buyers are hyper critical of everything. Sellers still want crazy money...Apartment investors selling at 4 caps and trying to buy retail at a 6. They see the end in sight of the multifamily run up. Something is happening.

Something weird is in the air. On the resi for sale side, due to lack of inventory, which leads to lack of volume and lower income, I'm seeing a lot of real estate offices closing here in San Diego.

Low inventory, low volume, high prices, discount brokerages now opening, all signs of the end, lol. I know a higher up and Trammel Crow. His words "multifamily is teetering"

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Just another anecdotal piece to back this - the MF team in my office has been boggled over pricing on deals in our market for about 2 months now. I regularly hear exclamations about the absurdity of it all. They're urging owners to get their assets to market now. This is a major US Metro area and this team has been selling these same assets for decades.

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Multifamily value-add is very frothy right now. This has resulted in the displacement of a lot of new construction core/core+ deals as institutional capital chases value-add yields. Pricing is dropping on these assets--in some cases, dramatically. As in, marketed for $400k/door, trading at $360/door with brokers telling buyers that the seller wants to sell, drop in pricing be damned. There's an opportunity to take on the lease-up risk of these types of assets, purchase at a very attractive basis, hold for what (probably) will be a few years of volatility, and do well on disposition.

I'm with you that a correction could be near, but don't think multifamily is going to collapse. Maybe certain types of MF assets are "teetering," but the asset class as a whole has a lot going for it. If we see a correction, we could see moderate pullback before things pick up again. The demographic trends supporting multifamily demand well into the next decade are striking:

Unemployment continues to decline and the Federal Reserve projects stabilized unemployment of 4.5% through 2019--these are historically low numbers

Homeownership continues to decline and is projected to fall to 60.8% by 2025, the lowest level since the 1950s
As younger generations age, homeownership will rise, but still remain 7-11% below the levels of prior generations at the same age...where will these people live? (JBRC report)

Student debt is getting out of control. In 2003, outstanding student loan balances were $243 billion. The NY Fed just put out a report pegging the recent number at $1.3 trillion. In a 2017 report by the National Association of Realtors, student debt was the most cited reason young buyers under the age of 36 cannot afford a down payment on a home, beating out CC debt, car loans, and health care costs by more than 20%

The US Census projects that the age cohort of 18-44 year olds will expand from roughly 115M in 2015 to more than 126M in 2030; virtually all of these additional 10M residents will, at one point or another, be a renter

Household formations continue to be delayed (a major historical marker signaling a shift from renting to owning), and the median age of marriage continues to increase for both men and women (currently 29.5 for men, 27.4 for women)

One area I agree could be problematic: 2017 is the year of peak supply for multifamily completions, but these are projected to fall below the historical average of 336,400 in 2018/2019

There isn't enough single family supply. Freddie projects demand for SF housing will be roughly 1.5M units/year over the next decade, while the National Association for Home Builders forecasts yearly avg. SF starts in 2017/2018 to be just 908K. Part of the reason behind this is that builders are having trouble making affordable entry-level product pencil, so they're building more expensive homes that large swathes of the US population can't afford.

Related to the previous point, resale homes are increasingly unaffordable as well. The historical spread between new and resale pricing is $19,000. As of 2017, this has ballooned to more than $80,000. Again, if single family is increasingly unaffordable, where will people live?

LINK to discussion on LA Housing Bubble

This post was edited on 6/17/17 at 8:27 am