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Data Compare For-Sale Home Expenses and Rental Housing Costs
According to the National Association of Realtors, the number of active for-sale homes in June 2023 increased by 7.1% on a year-over-year basis. By the same token, the total number of unsold homes decreased by 4.6% over the same period. The NAR also noted that home sellers, overall, tended to be less active than they were the year before.
Yet while home ownership demand could be slowing, a report from CBRE noted that rental housing could be the likely beneficiary. This conclusion isn’t surprising. But CBRE analysts backed it up with hard data, analyzing high-cost markets like Boston, MA.
First, Some Background
Yes, it’s more expensive to buy a single-family home these days. The reason? “The cost of homebuying has been more volatile than renting due to rapid swings in interest rates,” the CBRE analysts noted in their report.
The last time renting was less expensive than buying was in the period leading to the 2007 housing crash. The following decade was marked by lower ownership costs because of “rock bottom interest rates and much stricter lending criteria,” the report pointed out.
But the situation is different today. Said the CBRE analysts: “The residential market is dealing with the aftermath of hot housing demand from 2020-2022 as well as surging mortgage costs.”
Back to Boston
In conducting their analysis, the CBRE experts assumed that the costs to buy and rent tend to move in sync, over the long run. But in the short run, it’s possible for home sales prices to fall, while rents continued their upward trajectory.
On the home sales front, this is already happening. The NAR release said that the median price of for-sale homes fell by 0.9% year over year, “the first decline seen in our data trend history since 2017.” At the same time, material prices are on the rise, according to a June 2023 report released by Marcus & Millichap.
But the CBRE report pointed out that there’s more than mortgage rates at work when it comes to the increase or decline of home sales. Certainly, mortgage rates are expected to ease somewhat in the coming quarters, potentially lowering the cost of capital. Still, “supply constrained markets, such as Boston, are unlikely to benefit from more for-sale development activity,” the CBRE analysts forecast. This will likely increase the pool of renters
As a result, while the rental market could continue facing economic uncertainties, “stubbornly high for-sale costs will at least be a tailwind for rents in the medium to longer term,” the CBRE analysts concluded.
- ◦Lease
- ◦Sale/Acquisition
- ◦Financing
- ◦Economy
