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SECTION 1 | MARKET PERFORAMANCE<br />
Conclusions<br />
Overall multifamily expected <strong>to</strong>tal returns were little changed<br />
in the second half 20<strong>17</strong>. The positive impact of moderately<br />
stronger expected economic growth over the forecast interval<br />
is offset by the effects of firmer forecast home prices and higher<br />
projected terminal cap rates.<br />
Still, the multifamily investment thesis remains intact. Rental<br />
space demand is robust and is projected <strong>to</strong> persist at levels<br />
sufficient <strong>to</strong> maintain overall occupancy rates above 95% for<br />
the forecast interval, barring an unforeseen recession. Rents<br />
are likely <strong>to</strong> decelerate but trends should continue <strong>to</strong> materially<br />
outpace inflation, creating the conditions for further NOI growth.<br />
Although interest rates and cap rates are likely <strong>to</strong> rise faster<br />
than we expected earlier, relative investment returns should<br />
remain attractive so long as inflation remains within the bounds<br />
observed during the modern monetary policy era dating <strong>to</strong> the<br />
early 1980’s.<br />
15