Daily market intelligence on mortgages, equity raising, investment sales, and CMBS.

Monday, 08 July 2019

Home Ownership Viewed as Too Expensive By Growing Number of Renters

Written by 
Rate this item
(0 votes)

Commercial Real Estate Direct Staff Report

A growing number of renters believe that renting their homes is more affordable than owning, according to a recent survey by Freddie Mac.

The housing-finance agency, which four years ago started surveying households for opinions of housing affordability, found that 82 percent of the 4,000 households that responded to its latest survey thought renting was more affordable than owning. That's up 15 percentage points from its last survey, conducted in February 2018, and is the highest percentage ever recorded by the survey, explained Steve Guggenmos, vice president of Multifamily Research and Modeling at Freddie.

Nonetheless, absorption numbers for the multifamily market slipped substantially during the second quarter, to 36,052 units from 46,175 units in the first quarter, according to Reis Inc. But that's largely explained by the fact that the latest quarter included many properties that came online, but weren't quite ready for occupancy until late in the period.

Freddie's survey found that prospective home buyers are being impacted by down payment and closing cost requirements. A total of 88 percent of low-income renters cited the two costs as major obstacles, while 72 percent of middle-income renters cited them.

Meanwhile, 40 percent of all renters cited mortgage payments that would be higher than their rental payments as a major obstacle.

Reis, a New York research company that recently was acquired by Moody's Analytics, noted that the national vacancy rate had declined to 4.7 percent from 4.8 percent in the first quarter. It's been in that range since early last year and most likely will remain there for the near future.

That's mostly because construction activity is expected to slow later this year and remain relatively subdued through 2020 in many major markets. Construction during the second quarter amounted to 38,693 units, down from the 40,956 units at the start of the year.

The apartment market is also expected to add more units this year than the 261,000 units added in 2018, according to Reis. That's also higher than the 213,802 units added in 2017.

"Continued robust demand for rentals will likely manifest in vacancy rates that stay well in the 4s, or at most, rise to the low 5s," Reis said.

Despite the softer absorption numbers during the latest period, average asking rents still increased by 1.2 percent, to $1,471/unit, while effective rents were up by 1.3 percent to $1,400/unit.

So, even while rents have climbed and mortgage rates have declined - they dropped to an average of 4.09 percent for a 30-year mortgage during the first half from 5.09 percent last November, which would translate to a $120/month decline to $965/month for a typical $200,000 loan - renters still view the renting option as economically more affordable.

But the lower mortgage rates appear to be having a positive impact on the for-sale housing market, as the sale of existing homes in May increased by 2.5 percent from the month before to 5.34 million homes. That's the first increase in two months.

"There are folks getting a lot closer to homeownership," said Guggenmos. "About a third of the people we talked to are saving for a down payment, 24 percent have talked to real estate agents and 22 percent have spoken to a mortgage lender. We are looking to make these questions into a series, so we can see if those numbers increase in six months and next year."

Comments? E-mail Jim Boyle, or call him at (267) 247-0114.

 



weekly-call-to-action

“The Weekly”

“The Weekly” is Commercial Real Estate Direct’s PDF newsletter, sent to subscribers every Friday morning. With over 100 news stories published on Commercial Real Estate Direct each week, “The Weekly” features the top stories in commercial real estate that industry participants need to know first. “The Weekly” also contains:

  • Breaking mortgage, CMBS, and REIT news

  • Quarterly league tables with rankings of B-piece buyers, book runners, and lenders

  • Industry moves and changes in “The Insider“

Additional Info

  • Syndicate to Realpoint: No
  • Sector: Multifamily
  • Subject: Research (RES)
  • Company: Reis Inc.
  • Private: No
Read 158 times Last modified on Tuesday, 09 July 2019

Data Digest

 

CMBS DELINQUENCY VOLUME

dqdataFP1

 

CMBS SPECIAL SERVICING VOLUME

sschartfp

Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44

 

RCA CPPI

 

cppichart FP

 

 

CMBS 2.0 Spreads

AAAspreads

Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41

 

 

 

REITCafe

  • Challenging Retail Environment Weights on REITs
    Mixed economic news is weighing on retail markets, pushing REIT performance down in 2015. This week, the National Retail Federation announced that back-to-school spending is expected to be down 9.3% in 2015. This news came on the heels of a report from the Commerce Department stating that retail sales declined 0.3%...
     
  • US REITs Feeling Effects from Turmoil in Greece and China
    International economic forces have taken center stage this week, affecting both US stock markets and REITs. The crash in the Chinese stock market and ongoing concerns about the future of Greece in the eurozone drove markets down during the first half of the week. REITs fared better than the overall market...

  • What Does Increased Construction Mean for Apartment REITs?
    REITs so far this year have raised $17.1 billion of capital through the sale of unsecured notes, bringing the total raised over the past two and a half years to just more than $75 billion. That’s more than they raised during the previous five years. The massive volume shouldn’t be a surprise as it comes while the yield from 10-year Treasury bonds, the benchmark...
shouldn’t be a surprise as it comes while the yield from 10-year Treasury bonds, the benchmark against which most REIT’s price their bonds
warehouse-backstage