Rate declines continue to buoy homeownership while draining demand from the rental market …
The stunning declines in the interest rate structure have bestowed benefits on all components of the housing sector by lowering costs for producers, home buyers and owners of rental properties. It’s clear, however, that the greatly enhanced affordability of home buying has provoked a sizeable shift of housing demand toward ownership of single-family and condo units at the expense of market-rate rental accommodations.
The strength of single-family housing certainly has been impressive. Permit issuance and starts of new units both recorded nice increases in May, and a sizeable buildup in the backlog of unused permits (because of unusually wet weather conditions) bodes well for starts in June. Furthermore, NAHB’s Housing Market Index showed substantial strengthening of home-builder sentiment in early June, and the MBA’s weekly index of home mortgage applications climbed to a new record by mid-June; indeed, new records were posted for both home purchase and mortgage refinancings.
Supply-demand imbalances in market-rate rental housing (excluding subsidized low-income rental housing) are starkly evident in climbing vacancy rates for apartment buildings with five or more units and in eroding market absorption rates for newly completed units in such buildings. Starts of new multifamily units have weakened modestly in recent quarters, but the pace of completions has not yet tapered off — pointing toward market imbalances and rent concessions for some time.
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