Lack of Home Supply, Rising Costs Keep Renters in Place

Multifamily renters who may be looking to buy a home are finding tight supplies, escalating prices and increasing financing costs. Those market conditions mean the demand for multifamily rentals will remain elevated, according to a new research brief by Marcus & Millichap.

The report noted the number of existing houses listed for sale in February was down 32.6 percent year-over-year, the largest annual drop ever recorded. The few listings were snatched up quickly with homes staying on the market an average of 20 days, also a new low.

The lack of homes available for sale come at the same time prices to buy a house, both existing and new, are rising along with increasing financing costs. The April research brief states the median price of an existing home was up 16.2 percent year-over-year in February to $334,500.

Home Prices Escalate. Data and chart courtesy of Marcus & Millichap

New home prices rose 5.5 percent to a median price of $347,200. The report notes the 30-year mortgage rate rose above 3.1 percent in the past few weeks, up 40 basis points since early January.

Rising costs of labor and materials, particularly lumber, are also contributing to higher home prices. Higher lumber prices have added an estimated $24,000 over the past year to the cost of a new home, according to the National Association of Home Builders.

The combination is keeping more potential homebuyers out of the market, particularly to many renters who may be looking for homes priced less than $250,000.

Pandemic, Weather Impacts Market

Marcus & Millichap notes lingering issues related to the pandemic as well as more seasonal problems—bad winter storms in many parts of the United States— have also contributed to the supply problems and rising costs.

The report states many homeowners delayed upsizing or downsizing during the pandemic, choosing to remain in their current homes. Fewer people were relocating to new areas for employment reasons.

Still others took advantage of historic low interest rates and refinanced their mortgages. With fewer homeowners listing their properties, monthly sales dropped 6.6 percent for existing residences and 18.2 percent for new homes.

Inclement weather hampered construction of both single-family homes and multifamily properties in February for an overall drop of 10.3 percent in residential starts.

Multifamily construction starts were down 15 percent in February while single-family starts declined 8.5 percent, according to Marcus & Millichap. That is expected to be temporary and long-term construction trends call for an increase in homebuilding with permits up nearly 20 percent for the year, the report noted.

Demographics Also Boost Demand

The number of households contracted during the pandemic but Marcus & Millichap expects those who returned home or doubled up with friends and relatives during the crisis and subsequent recession will begin to seek their own housing as more people are vaccinated and more workers find jobs.

In other demographic-driven trends, more millennials will age into their 30s, the age when many buy homes. The research brief states the number of 30-year-olds should rise by nearly 2 million over the next five years and add to the demand for homes.