Putting together an outlook is risky.  At the end the forecaster is at risk of becoming a hero and authority or the complete fool: forecasting is easier when the trends are clear and others actions are predictable but it's only a guessing game when you don't know what others will do more so because they are in the same position of uncertainty and don't have a clue.  I'm not a forecaster though I have studied economics and I do track the market as a real estate professional and investor.

It is with this though that I'll answer the question about the multifamily outlook for 2009 + and I'll specifically focus on small properties, 2-4 units that can be financed using residential financing not the larger commercial complexes which play by different rules.

First and foremost the current economic change is of greater proportion than any recent recession.  We are not only at the of an era, we are in the midst of a reshaping of the United Sates and its financial position in the world.  So it's not the 80's, it's not the early 90's nor the recent tech bubble recession.  This is much bigger and longer felt.

For decades there was a myth about housing, particularly that everyone had to own: and propaganda of housing, that owner occupied housing is a good investment. 

This was wrong and we see the results now.  Home ownership reached nearly 70% but the trends point to this number declining.  This is not a bad thing.  Not everyone is meant to be an owner occupant and not everyone needs to own. 

This decline in home ownership will be exacerbated by the difficult home market.  Maybe people will finally understand that home-ownership is not an investment: it is first and foremost shelter plus it limits mobility in this increasingly nimble world.

Where does this leave the investment market for both single family homes and multifamily?

2009 is the year of foreclosures.  Despite the increasing sales of homes, the supply is still large, the economy is contracting, unemployment is increasing and financing is difficult to obtain in addition to the trends mentioned above.   President Obama will not rescue housing, he will at most dull the pain or forestall the inevitable.

Small multifamily properties have been hit hard as well.  They were run up in values just as much as homes, people purchased them simply for flipping not for investment, driving the prices to unreasonable highs.

Prices in 2007, 2008 and in 2009 have come down a lot: they have come down to levels which makes many of them worthy of a look as a business purchase.  

If the property produces income that returns a reasonable return on the investment money then investors will probably look at them.  This is happening now.  Depending on the location, class and property a small multifamily property can have cap rates ranging from 6-20.  

Those premium properties at 6 cap rates are probably still overpriced, especially when you consider the cost of debt: in such as case an investor falls into the negative leverage trap.   

But many multifamily properties in good rental areas in decent condition can be purchased at a 10-13 cap rate.  This is a very good return and it's increased with leverage.  This includes, of course, the rather high vacancy rates (14%) through out the valley ranging from the lower rates in Central Phoenix and Tempe to the highs in Mesa, Glendale and parts of Phoenix.

The problem is that despite the very high supply of multifamily properties the market there are few that qualify as good investments by most measures.

If an investor is willing to by C or lesser properties with high vacancy with high management input they can obtain return as high as a 20 cap rate but that's if you don't put a value on your own effort and most people don't want to do that.

These properties (the nasty stuff: worn, vacant, neglected and in high vacancy areas) that dominate the market now will linger and probably decline in value further in 2009 and expect some more such properties to enter the active market.  Some have come down in price so much that investors do see the value in them and are willing to buy because the return calculated in there, including the investors extra effort and time.

The trends for multifamily owners are good, just not those holding premium properties but there are almost none in the 2-4 or even up to 20 unit properties that can be considered A type in Phoenix.  

A recent survey by RERC/CCIM Investment Trends found that, "If respondents were to buy a property, apartments would be their investment of choice, apartments won the highest rating of all sectors for both return vs. risk and value vs. price."

We are in a period of de-leveraging with many deflationary pressures.  Those people with little leverage and steady employment will see their spending ability rise: these are the potential renters for 2-4 unit properties in B areas.

The owners of properties in good rental areas with easy access to transpiration, near the employment hubs, good schools and provide a decent life for residents stand to do very well, especially if they are proactive in they're marketing

Does this answer the question of what is the outlook for 2009?  Probably not but I think there are some things to consider when investing in multifamily in Greater Phoenix.  

Is it a good time to buy? Possibly, Probably:  If you can cash flow and get a return above the cost of leveraging then its possibly a good investment as long as it's weighed against the trends above.