Pending home sales reveal impact of mortgage rate surge. Upward pressure on mortgage rates from lofty inflation and the Fed’s plan to hike interest rates multiple times this year are influencing home buying. In late April, the average rate for a 30-year mortgage climbed for the seventh consecutive week to 5.1 percent, up 200 basis points from the beginning of this year and almost twice as high as the 2020 trough. While demand for homes remains sturdy, the higher cost of borrowing is condensing buying activity. The pending home sales index illustrates this trend, with the March measure the lowest since early 2020 and 8 percent beneath the recording one year prior. A slowdown in purchases, however, has not yet weighed on price growth. The median sale price of an existing home rose 1.3 percent month-over-month in March.

Multifamily still in a strong position if housing market cools. The recent mortgage rate swell and coinciding moderation of home purchases has the potential to temper price growth, but the affordability gap relative to apartments remains substantial. The difference between an average monthly mortgage payment and a rent obligation stood at $638 in the first quarter of 2022. By comparison, that margin was $440 during the same period in 2021. Not only do apartments appeal as a significantly more affordable living option, they also offer greater flexibility via short-term leases, require little maintenance by tenants and sometimes provide attractive amenities, such as workout facilities and pools. These factors will sustain multifamily momentum, keeping the national vacancy rate extremely tight in the mid-2 percent range in 2022.

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