The gap between homeownership and rental costs has continued to widen during the second quarter, according to Newmark’s most recent multifamily capital markets report. The gap increased 26.7% year-over-year to $1,114.
Meanwhile, MBA’s Mortgage Application Index, a housing and mortgage market indicator, has decreased 48.4% since March 2022 when the Fed initially increased rates. Applications are at the second lowest level in nearly a quarter century as the 30-year fixed mortgage rate hit 6.86% during the quarter. Borrowing costs for homebuyers are 43% above the five-year average, said Newmark.
Benefiting from decreased home affordability, multifamily demand increased 102% during the second quarter to 161,707 units, according to the report. Rolling four-quarter demand accelerated to 389,629 units, which has improved for five consecutive quarters, said Newmark. Demand was particularly strong in the Sun Belt – particularly Austin, Raleigh/Durham, and Nashville – where demand was 64.4% greater on average than the long-term average from 2014 to 2023.
Just over 157,000 units were delivered during the second quarter, topping the previous record units delivered of 126,591 during the first quarter of this year. New deliveries are expected to continue to accelerate in the third and fourth quarters of 2024, before slowing down in the first quarter of 2025, Newmark said.
Despite high levels of new supply, rolling four-quarter starts and permits have declined from their peak in 2022, which should lead to normalized levels of deliveries in 2025 and 2026. Multifamily units under construction declined to 880,000 in the second quarter, down 11.4% year-over-year. Units under construction peaked at 993,000 units during the second quarter of 2023, according to Newmark.
Quarterly rent growth rose to 1.1% in the second quarter of 2024, while year-over-year growth remained nearly flat at 0.2% for the third quarter consecutively. But year-over-year rent growth is projected to increase throughout the second half of 2024 and 2025 as new supply fears wane, said Newmark.
During the next two years, $669 billion in multifamily loans are scheduled to mature, primarily held by GSEs and banks. This is despite originations declining 32% and 22% year-over-year respectively. Commercial mortgage-backed securities have been a bright spot, with 167% year-over-year growth during the first quarter of 2024, said Newmark.
Sales volume rose to $38.8 billion in the second quarter of 2024, representing a 20.4% year-over-year increase in volume as a flurry of portfolio and entity-level transactions closed throughout the quarter. This also signifies the first sequential positive year-over-year change in volumes since the second quarter of 2022.
