Low Mortgage Rates and Tight Labor Market Bolster Housing Demand

 

I
I
HOUSING JUNE 2019
I
Research Brief
Low Mortgage Rates and Tight Labor Market Bolster Housing Demand
I
Housing outlook rises as mortgage rates fall. Existing home sales fell for the second consecutive month in April, as the higher mortgage rates weighed on demand and the limited supply of available homes left entry-level buyers with few options. Though the housing market has had its challenges, builder sentiment is improving, leading to a moderate rise in permit issuance and housing starts.

Housing sector sustains positive demand drivers.
For the first time since January of 2018, mortgage rates dipped below 4 percent. With borrowing costs at 18-month lows, current owners are regaining some of their purchasing power. As rates stay compressed and the supply of available homes continues to increase, overall home sales should rise in the coming months. Despite improving sentiment, the lack of available lots and tight labor markets nationally will keep constraints on new housing development, supporting the sustained appreciation of existing homes and tight vacancies in apartment buildings.

Shortage of available starter homes benefits rental market. As the current business cycle matures and economic momentum slows, consumers are choosing to stay in their first homes longer. These owners are more likely to upgrade their homes through renovations, placing added demand on home improvement and furniture retailers. This restraint on for-sale inventory will keep rental vacancy tight near employment hubs. Many millennials are choosing to continue renting as they favor the amenities and location provided by urban apartments. Those who are transitioning into single-family homes are often pushed to the edges of existing suburbs, where higher land availability and reduced demand increase affordability. As households increase in these areas, investor demand for suburban commercial real estate assets may increase.

I
Follow Us on Twitter @MMReis
Developing Trends
I
Mortgage rates fall; window of opportunity for homebuyers. At the end of May, mortgage rates dipped below 4 percent, the lowest mark since January of last year, priming the housing market for a rise in sales.

Tight unemployment drives demand for workforce housing.
Class B and C apartments have been outperforming as the current cycle extends; however, with economic headwinds mounting, strong rent growth and vacancy trends may moderate in the coming months.

Many homeowners elect renovation over move-up. Low mortgage rates are not only driving housing demand but also increasing consumption. Refinancing opportunities at these lower rates can free up capital for owners to improve their homes. The Remodeling Activity Indicator, which tracks the amount of money spent on home improvement supplies, shows an annual increase in home remodels of 7 percent at the end of the first quarter.

I
$269,300
Median Price of Existing Single-Family Homes
I
4.2

Months of Existing Home
Supply at Current Sales Pace
I
I
* Through week ending May 24; Mortgage Rate through May 26
Trailing 30-day average
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; National Association of Home Builders; National Association of Realtors; U.S. Census Bureau

 

Post a Comment

Required fields are marked *

*
*

%d bloggers like this: