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Rising Interest Rates Lift Outlook for Apartments
Though mortgage interest rates remain historically low, the average 30-year fixed rate reached its highest level since 2011. Rising mortgage rates in conjunction with home values that have appreciated more than 64% over the same time period are discouraging many potential homeowners from making offers due to their inability to afford mortgage payments, according to research by Marcus & Millichap.
The impact of higher rates has “taken a bite out of the for sale housing demand,” Marcus & Millichap’s Hessam Nadji told CNBC, noting that since 2011 consumers have favored renting over owning, which has “put demand for rentals on steroids.”
Marcus & Millichap reports multifamily vacancy has hit a 17-year low, and there’s limited supply. Nadji pointed out that there’s supply of high-end product in 10 to 12 markets, but overall the nation faces limited supply. Nadji says, that’s led to rent growth in apartments and the sector has done well, and will continue to do so since people are not buying.
Nationally, nearly 82,900 apartment units were constructed in the third quarter, but the positive absorption of more than 107,000 units pushed down the 3Q apartment vacancy rate 40 basis points from the previous quarter to 4.2%, the lowest level since 2001. Shifting dynamics in the single-family market will continue to benefit apartments through the remainder of 2018, as the year-to-date positive net absorption of units is on track to reach the highest level since 2010, predicts Marcus & Millichap.
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