Marcus & Millichap ties 7.3% mortgage rates to apartment demand

Just 27% of U.S. households can qualify for a mortgage on a median-priced home under Freddie Mac underwriting guidelines, Marcus & Millichap senior vice president John Chang said in a video analysis reported by Connect CRE.

The 30-year mortgage rate has climbed about 130 basis points to the 7.3% range, cutting home purchasing power by 8%. The monthly payment on a $425,000 median-priced home in February is now about equal to the payment on a $390,000 house.

Each home sale generates about $8,700 of retail consumption including appliances, furniture and renovations, so slower housing could moderately hit retail and industrial while helping multifamily most.

Chang estimated the gap between the mortgage payment on a median-priced home with 10% down and average apartment rent at $1,411, the widest on record. Over the past year, the median single-family home price rose 1.2% while the monthly payment including principal, interest, taxes and insurance rose about 8%, and apartment rents rose 1.9%. Renewals at 57.7%, near the pandemic-era peak of 58.5%, mean renewal spreads matter more to apartment rent growth than occupancy does.

Slackening job creation, slower household formation and more young adults living with family are restraining apartment demand, Chang said, with the rising cost of homeownership only partly offsetting them. Chang expects the trend to play out over the next couple of years.