Recent housing statistics suggest a cooling in the existing housing market. This is generally good news for the multifamily industry.
Even in a climate of high supply (2018 completions will likely surpass 2017), multifamily demand is holding up extremely well. The latest data from CBRE Econometric Advisors reveals that, nationally, demand is outpacing completions. The Index shows national vacancy at 4.2%, down 40 bps from the prior year.
Meanwhile, the exodus of multifamily residents to homeownership remains quite moderate.
Total home sales in September fell to the lowest level in nearly three years and were down 4.1% year-over-year according to the National Association of Realtors. Median sales prices are still rising, but the year-over-year increase of 4.2% in September was one of the lowest in the past nine years.
Less robust housing sales activity is due to two principal reasons: higher mortgage rates and a continued mismatch between demand and available supply.
The mismatch comes from the relative lack of inventory of for-sale homes in the more moderate price ranges where potential demand from younger households is quite strong. A significant portion of millennials (oldest turning 38 in 2018) are interested in homeownership, but are still not able to purchase due to cost. Millennials also seem to favor newer homes as well as closer-in locations that adds to their difficulty in finding homes to buy.
Average mortgage rates have risen 91 basis points year-to-date for a 30-year fixed-rate mortgage—from 3.95% at the beginning of January to 4.86% this week—according to Freddie Mac. Higher mortgage rates have clearly added to the expense of buying a home and have taken some households out of the market. This dynamic is laid on top of the nine-year trend of home prices rising well in excess of inflation and wage levels; since the recession, the median home sale price in the U.S. has risen by an average annual rate of 5.5%.
So, even if multifamily renters would like to buy a house someday (as most surveys indicate), the path to homeownership remains challenging.
By Jeanette Rice, Americas Head of Multifamily Research, CBRE.
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