Higher Home Prices and Expensive Mortgages Create Apartment Tailwinds
The supply and demand imbalance for single-family homes has been exacerbated in recent years. Supply (measured by active listings) is 42% lower than its pre-pandemic level. The reduction in homes available for sale is driven by reduced listings of existing and new homes. Existing homeowners are navigating “golden handcuffs” with low in-place fixed-rate mortgages. The prospect of moving from a 3-4% mortgage to a ~7% mortgage has created an incentive for homeowners to stay put, because they cannot afford the increase in monthly payments. The cyclicality of the housing market also contributes to the reduction in current supply. The industry took years to recover from the 2007 subprime mortgage collapse and the pandemic introduced additional headwinds for builders in the form of rising material costs, supply chain disruptions, and labor shortages.
The median single-family sales price has increased 28% since the end of 2019 in part due to the limited availability of homes for sale. Increased home prices coupled with higher mortgage rates has resulted in the highest cost of homeownership since 1985. Prospect believes this affordability crisis is a tailwind for expanding the population of apartment renters and, consequently, for investments in naturally affordable workforce multifamily properties.
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