Why I Think Multifamily Real Estate Is Overvalued Right Now

This year has been a monumental one for multifamily housing. After a rocky 2020, throughout which the pandemic shook the world, 2021 brought back multifamily demand in big ways. Year-to-date multifamily net absorption is at 450,100 units -- a new record -- while average rents exceed pre-pandemic levels in all but four major markets. It seems only logical that as multifamily rental demand soars, so does investor participation. But just because a market is on fire doesn't necessarily mean it's worth the price.

Personally, I feel the multifamily industry is extremely overpriced right now. And as an investor, that means it's an industry I'm treading lightly with before participating. While there is definitely still long-term opportunity in the multifamily sector and several solid picks among multifamily real estate investment trusts (REITs), I think multifamily is overvalued right now. Here's why.

Just over a year ago, multifamily housing was in a bit of limbo. Double-digit unemployment rates made it extremely challenging for a number of tenants to pay rent, moratoriums prevented landlords from evicting past-due tenants, and most metro markets battled a tenant exodus. Sentiment for the future of the sector was low.

Source Fool.com