Rise in New-Home Listings Does Little to Relieve the Supply-Demand Imbalance
Listings of newly built homes prop up for-sale inventory. The number of single-family houses available for purchase grew by 3.8 percent from May to June, a change of tides after listings steadily declined during the pandemic. Specifically, the number of new homes for sale increased at the fastest pace month over month in more than 50 years. This figure includes listings of houses that have not yet actually broken ground, though. Meanwhile the for-sale supply of existing homes remains extremely tight. Owners of single-family houses with mortgages at historically low interest rates have a reduced incentive to relocate. This reinforces the barriers faced by many entry-level and first-time buyers as the median price of a new home is notably higher than the cost of an existing dwelling. Newly built homes tend to be among the least affordable and are accounting for a greater share of listings, keeping the path to homeownership unattainable for a large cohort of renters.
Luxury rentals offer a more affordable alternative to ownership. The increase in houses for-sale is not affecting rental demand, with the multifamily sector just registering its largest quarterly absorption total since at least 1993. The Class A tier piloted the strong performance. Luxury rentals offer a quality living experience to those being priced out of homeownership, funneling demand toward the segment. At the same time, some individuals prefer the flexibility and amenities of apartments. Class A vacancy contracted by 100 basis points from April through June to 4.5 percent, the second-lowest rate to end a quarter dating back to 2014. Robust demand spearheaded the Class A tier’s fastest quarterly rent growth in more than 20 years.
Apartments attracting more investors. Investor confidence in multifamily is strengthening after the record-setting second quarter performance and an outlook that is bolstered by a lack of moderately priced homes available for purchase. The buyer pool for apartments is growing, facilitating a competitive bidding market. Multifamily assets traded for an average of $171,000 per unit over the past year ended in June, up 5 percent annually. Meanwhile, the average cap rate fell 20 basis points to 5.1 percent as aggressive pricing is applying downward pressure.