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Food For Thought…If You are an Apartment Owner

by RRA on May 11, 2018
Food For Thought…If You are an Apartment Owner

The for-sale housing market is tight. Supply is low, prices continue to increase to record levels, and mortgage rates are rising. Consumer confidence in housing jumped to its highest level on record in April, according to a monthly sentiment index from Fannie Mae. More consumers think their incomes will rise over the next year, and fewer think they will lose their jobs. Consumer attitudes remain resilient going into the spring/summer home buying season, according to the Senior VP and Chief Economist at Fannie Mae.

The tightest supply in decades, combined with rising mortgage rates from historically low levels, will likely remain a hurdle for mobility and a persistent headwind for home sales. Headwinds in the housing market create a solid contra-fundamental for the multifamily market. In short, low housing supply coupled with high demand and rising rates tips the “cost to rent versus owning” in the favor of renting.

Home prices made their biggest jump in four years in March, up 7 percent compared with March 2017, according to CoreLogic, which also calculated that half of the nation’s 50 largest metro markets are now considered overvalued. That is based on prices being at least 10 percent higher than the long-term sustainable average.

While more Americans are less concerned about losing their jobs, just 18 percent said their household income is significantly higher than it was a year ago, according to the Fannie Mae survey. While that is a slight gain compared with March, it doesn’t exactly mean potential buyers are swimming in cash. Home prices are rising far faster than incomes.

Demand, however, continues to rise as the largest generation, millennials, moves solidly into the home buying years. While supply is lowest on the low end of the market, a growing number of first-time buyers are buying move-up homes, instead of entry-level homes. That is because millennials waited longer, following the recession, to become homebuyers, meaning they are likely in higher-paying jobs than previous generations of first-time buyers. Still, if mortgage rates continue to rise, fewer millennials will be able to afford homeownership, and more will continue to rent. This factor should make apartment owners comfortable that the extended strong cycle they’ve been experiencing will continue for the foreseeable future.