Housing: A Marcus & Millichap Research Brief
March 11, 2022 | Marcus & Millichap
Mortgage Rate Swell Has Yet to Extinguish Hot Home Prices
Owners display a preference to stay put. The number of existing homes for sale continued to abate in January, reaching just 850,000 houses, compared to an average of 1.7 million listed homes during the same month from 2015-2019. There are several factors driving this trend, affecting both buyers and sellers. Very strong buyer demand for larger living options like single-family houses, to assist with at-home work and learning, has squeezed for-sale inventory and driven up prices. The rapid appreciation has made it difficult for owners to move up the quality stack and concurrently free up their entry-level homes. Also, the typical generational swap, where older residents downsize or enter age-restricted communities, has been temporarily stalled, as virus concerns make the older cohort hesitant to live among others.
Extended renter cycle a longer-term trend. Home prices are not expected to drastically decline in the foreseeable future, as buyer demand sustains upward pressure. As such, the majority of younger millennials, along with Gen Z, will likely rent longer into their lives than the previous generations, due to the difficult transition to ownership, as well as a fondness for the flexibility and lifestyle that apartments can provide. This will keep multifamily vacancy tight and could also benefit self-storage. People accumulate items as they age and start families, and they may require more storage space than apartments can offer, especially in dense urban areas.
Rapid rate climb has little impact on prices so far. The 30-year mortgage rate approached 3.9 percent in February, up 80 basis points from the start of 2022. Nonetheless, the median sale price of new and existing homes remained on a swift upward ascent, fueled by buyer appetite. Historically, higher mortgage rates suppress buying activity as financing becomes more expensive, moderating the pace of price growth amid less competition. Indications of upward rate movement and the corresponding deceleration of price gains typically coax homeowners that had been holding on to homes amid fast appreciation to list; this pattern, however, does not match the current climate. Prices continue to skyrocket, incentivizing owners to sit tight until growth wanes.
