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Housing outlook rises as mortgage rates fall

Existing home sales fell for the second consecutive month in April, as the higher mortgage rates weighed on demand and the limited supply of available homes left entry-level buyers with few options. Though the housing market has had its challenges, builder sentiment is improving, leading to a moderate rise in permit issuance and housing starts.

purchase mortgage application index levels as mortgage rates fall

Housing sector sustains positive demand drivers

For the first time since January of 2018, mortgage rates dipped below 4 percent. With borrowing costs at 18-month lows, current owners are regaining some of their purchasing power. As rates stay compressed and the supply of available homes continues to increase, overall home sales should rise in the coming months. Despite improving sentiment, the lack of available lots and tight labor markets nationally will keep constraints on new housing development, supporting the sustained appreciation of existing homes and tight vacancies in apartment buildings.

Shortage of available starter homes benefits rental market

As the current business cycle matures and economic momentum slows, consumers are choosing to stay in their first homes longer. These owners are more likely to upgrade their homes through renovations, placing added demand on home improvement and furniture retailers. This restraint on for-sale inventory will keep rental vacancy tight near employment hubs. Many millennials are choosing to continue renting as they favor the amenities and location provided by urban apartments. Those who are transitioning into single-family homes are often pushed to the edges of existing suburbs, where higher land availability and reduced demand increase affordability. As households increase in these areas, investor demand for suburban commercial real estate assets may increase.

-Marcus & Millichap

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