Affordability Spread Remains Large, Despite Multifamily Rent Escalation
- Home prices climbing, despite a slowdown in buying. For the first time since 2019, the average rate for a 30-year mortgage breached 4 percent in March, then accelerated at an even faster pace, following the Fed’s first interest rate hike in over four years. Higher mortgage rates make houses less affordable, in an environment where elevated prices are already an inhibiting factor.
- Apartment rent gains catching up to home prices. Preliminary estimates for the first quarter of 2022 show a 16.8 percent lift in average effective apartment rents in the United States, slightly faster than the annual price leap for homes. The formidable apartment rent increase is facilitated by extremely tight vacancy, with tenants competing for record-low volumes of available units in markets across the country.
- Single-family rentals not the lead cause of high prices. More REITs and corporations are exploring single-family homes as an alternative investment option. These well-capitalized groups often outbid individuals and private buyers, contributing to rising prices.
- Interest rate hike expedites mortgage rate ascent. The 30-year mortgage rate has been steadily climbing, and the Fed’s announcement of an increase to the benchmark rate sped up the pace of growth in mid-March.
- Permit activity indicates some additional relief. The single-family sector has been starved for development over the course of the health crisis, as inventories plummeted amid robust buying activity. Builders had a difficult time keeping pace with demand, as material costs soared and labor shortages impeded project timelines.
* 2022 Q1 figures are preliminary estimates
Sources: Marcus & Millichap Research Services; Capital Economics; Freddie Mac; Moody’s Analytics;
Mortgage Bankers Association; National Association of Home Builders; National Association of Realtors; RealPage, Inc.; U.S. Bureau of Labor Statistics; U.S. Census Bureau; Wells Fargo