What’s REALLY Going on with Housing?

As 2024 started, it looked like the average 30-year fixed-rate mortgage for single-family homes was on its way down, dropping to 6.6% in January, representing an eight-month low. But that decline, it seemed, was short-lived. Less than a month later, the average mortgage rate bounded back up to 6.9% due to what a Marcus & Millichap report classified as “the impact of stubborn inflation on long-term yield bonds.”

Perhaps predictably, this led the National Association of Realtors’ Realtor.com to point out that “the housing market isn’t off to a good start this year.” In its just-released “Pending Home Sales” report, the NAR reported that pending home sales dropped 4.9% month-over-month in January 2024.

Additionally:

• Pending transactions fell by 8.8% from January 2023

• All four U.S. regions registered year-over-year decreases in pending home sales; the Northeast fell by 5.5%, the Midwest by 11.6%, the South by 9.0%, and the West by 7.0%

NAR Chief Economist Lawrence Yun explained that the job market remains solid, with the country’s total wealth reaching record highs. On the one hand, this has meant favorable economic conditions for homebuying. However, “consumers are showing extra sensitivity to changes in mortgage rates in the current cycle, and that’s impacting home sales,” Yun said in a press release.

Realtor.com’s senior economic research analyst, Hannah Jones, added that buyer demand connects directly to mortgage rates. As such, “the recent uptick in rates could mean slower seasonally adjusted sales as the spring homebuying season kicks off,” she said in an interview.

Meanwhile, on the Multifamily Side . . .

Various multifamily reports in recent months indicated flat to negative rent growth (depending on the part of the country) due to increased unit deliveries. This, even as demand remained strong due to single-family housing fundamentals.

A just-released report from ApartmentList noted that February 2024 rents bucked the negative growth trend, highlighting much of 2023 with a 0.2% month-over-month rent growth increase. Still, according to the report, year-over-year rent growth was at -1.0%.

Furthermore, vacancy is at 6.6% and has been “slowly but consistently easing for over two years,” ApartmentList said. With more completions anticipated in the coming year, ApartmentList analysts said they expect a continuation of “an abundance of vacant units in the year ahead.”

But Wait . . .

Marcus & Millichap noted that, yes, the anticipated 480,00 multifamily units anticipated to come online will “mark an all-time high.” But look for a construction slowdown after that. Marcus & Millichap analysts reported that multifamily starts in January 2024 fell by 37% year over year, making “the slowest annualized pace since May 2020.” Nor is this likely to improve based on January permitting activity (a year-over-year drop of 23%).

The short-term view is that deliveries will ramp up vacancies in the near term. However, “the sector seems to be moving past peak construction levels,” Marcus & Millichap analysts observed.

Industry leaders and power players are connecting at Connect Phoenix Multifamily & Single-Family Build-to-Rent on April 18 at the Westin Kierland Resort & Spa. Don’t miss the expert’s take on where the market is headed, and what changes are on the horizon. Register Now!