The multifamily sector is taking a beating and experiencing record vacancy rates due to high unemployment and low household formation, according to Freddie Mac.

Freddie Mac and its sister company, Fannie Mae, are major investors in multifamily loans, and could experience greater delinquencies if the situation persists.

High jobless rates among teenagers (27%) and 20-24-year olds is forcing many to postpone household formation or move back with family and friends, according to Freddie Mac chief economist Frank Nothaft.

In addition, the vacancy rates have moved up as federal tax credits for first-time homebuyers have encouraged renters to become homeowners.

A Census Bureau report shows the vacancy rate on buildings with ten or more apartments is 13.5% as of Sept. 30. For apartments built since the start of 2000, the vacancy rate is 23.2%, "reflecting in part the slow rental rate of newly built dwellings,"

Nothaft says in a paper on housing trends. "As a result of rising vacancies and lack of opportunity to increase rents," he said, multifamily property values are falling and delinquency rates on multifamily mortgages are rising.

The Freddie economist points out that the National Council of Real Estate Fiduciaries has reported that multifamily property values have declined 29% from their mid-2008 peak.

The Federal Deposit Insurance Corp. reported that the number of multifamily loans 90 days for more past due has doubled since last year and hit 3.6% in the third quarter — the highest since 1993.

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