Rising Interest Rates Creating Opportunities in Multifamily Housing
• 2 min read
- Brief: Alternative Investments
It’s now cheaper to rent than own a home—that spells opportunity for savvy investors.
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With house prices still sky high, interest rates at a 20-year peak, and condominium and townhouse construction limited by legal constraints, renting an apartment continues to be more economical than owning a home for most Americans.
That means that demand for multifamily housing will likely remain strong for the foreseeable future. Investors should take note.
Over the first half of 2023, the average U.S. multifamily rental-unit lease rate was less than the total median monthly home-mortgage payment.
Consider that the median sales price of houses sold stood at $436,800 at the end of the first quarter of 2023, according to the Federal Reserve Bank of St. Louis. The average 30-year fixed-rate mortgage was 6.69% as of mid-June. Therefore, a person buying a home with 20% down could expect monthly mortgage payments around $2,253. This compares to the national median rent payment of $1,995 as of May 2023. These metrics suggest there is an 11% discount to rent versus own, nationally. In growth markets of the Southwest and Sunbelt, the rent/own discount can be more than 50%.
This all means that the booming demand for affordable housing can only be met by apartments and other multifamily housing projects. As witnessed across many cities and towns, developers have been active in recent years, with new multifamily construction expected to reach record levels in 2023 and 2024. Still, permitting activity for new projects has already slowed. Further, higher interest rates make many planned projects uneconomical and therefore, unlikely to move forward. The delivery of newly developed properties is expected to again slow in the years after 2024 and 2025, with the supply and demand imbalance reasserting itself in the multifamily housing market.
Bottom Line: It seems likely that there will remain a high demand for multifamily housing, making it a potentially attractive investment opportunity.
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This information is for general information use only. It is not tailored to any specific situation, is not intended to be investment, tax, financial, legal, or other advice and should not be relied on as such. AMG’s opinions are subject to change without notice, and this report may not be updated to reflect changes in opinion. Forecasts, estimates, and certain other information contained herein are based on proprietary research and should not be considered investment advice or a recommendation to buy, sell or hold any particular security, strategy, or investment product.
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