Secondary Markets

In this May 13 issue of the Multifamily Edge newsletter, we explore secondary multifamily markets


In this week’s issue, we explore secondary multifamily markets.

This Week’s Top Headlines

  • Vote: Here’s what you can expect to affect multifamily in the upcoming midterm elections — Globe St 
  • Bigger in Texas: Four major deals highlight the ongoing multifamily investor interest in Texas — The Real Deal
  • Going Up: Demand for multifamily increases as mortgage rates rise — MHN
  • Shocker Deal: ICE agrees to pay $13 billion for mortgage data provider Black Knight — Housing Wire 
  • Delinquencies Down: The rate for mortgage loan delinquency for one-to-four-unit residential properties decreased to 4.11% in Q1 2022 — MBA
  • Cool Housing: Based on a substantial rise in inventory, price acceleration decreasing, and annual rent growth slowing, Zillow is calling a market cooldown — Zillow
  • Rent: In most areas, price growth has exceeded rent gains in national indexes — CoreLogic
  • Laws: Federal regulators proposed significant changes to the Community Reinvestment Act (CRA), here’s what that means — CNBC

Smaller Markets

Main Takeaway: Secondary and tertiary markets are poised to lead the way in market appreciation over the coming years as a result of demographic and migration trends. Investors should take a closer look at smaller markets in their vicinity.

The Story

According to, Americans are on the move. In Q1 2022, 59.7% of all listing page views were for homes outside of the metropolitan area where the shopper lives. This was a jump of 1.9% from Q4 2020, and up 4.6% year-over-year. These searchers were looking for lower priced homes in smaller markets, particularly in the south and sun belt.

out of market viewership trend

According to the report, “As nationwide listing prices continue to rise and remote work policies are made permanent by many employers and preferred by many workers, homebuyers are seeking out listings in more affordable areas where they may not have had the flexibility to live before.”

Census Data shows that larger metro areas experienced almost no population growth over the past few years. In its 2021 Metropolitan Statistical Area (MSA) annual population estimates, they note that between 2020 and 2021, MSAs combined population increased at only 0.1%.

The National Association of Realtors (NAR) reported recently that the top 10 areas with the highest year-over-year price gains were entirely midsize and small markets. The top three included: Punta Gorda, Fla. (34.4%), Ocala, Fla. (33.8%), and Ogden-Clearfield, Utah (30.8%).

Indeed, the pandemic has fueled a migration outward from major metros to more affordable smaller markets. With hybrid remote work seeming like it will be permanent, the move to smaller markets appears as though it will be sustained, presenting good long-term opportunities for multifamily investors.

As interest rates continue to rise, expect this search for affordability to become more pronounced and sustained.

Here are a few other reasons investors should take a closer look at smaller real estate markets:

  • Less competition: Larger REITs, private equity, and larger developers tend to focus on primary markets. 
  • Better value: Smaller markets tend to be more financially accessible in terms of resale and development potential.
  • Higher return: Properties in smaller markets tend to have higher cap rates.
  • Volatility: During a recession, and one certainly looks likely in the coming years, secondary and tertiary markets tend to be less volatile. 
  • Growth potential: Lower supply means there is more revenue and appreciation growth opportunities.
  • Vacancy: Because smaller markets have fewer purpose built rentals, the vacancy rates for well-built rental stock can be lower.

Expert Take

“Price gains in many smaller, tertiary cities are now outpacing those in the more expensive primary and secondary markets…This is due to buyers looking for less expensive housing and also a result of more opportunities to work from home, making relocation to smaller markets possible.” —  Lawrence Yun, NAR chief economist
“[I am betting on] minor cities, or secondary cities like Baltimore and smaller cities in the Midwest because the inflation rates are greatest there in real estate values.” — Barbara Corcoran, Shark Tank and Real Estate Investor

Chart: Demand Slows

According to Redfin, homebuyer demand is coming back down to reality, dropping 1% year-over-year as interest rates rise.

redfin homebuyer demand index
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