The steady rise of mortgage rates presents a good-news/bad-news situation for the multifamily property sector, according to CoStar research.
While any bump in interest rates increases borrowing costs for apartment developers and other commercial real estate projects, it also makes it harder for would-be homeowners to qualify for mortgages, which results in more demand for apartments.
Recent research from CoStar posits that for every rise in home mortgage interest rates, thousands of renters who may be looking to buy homes are priced out of qualifying for a mortgage - thereby remaining in the pool of renters.
On the other hand, this group of renters is more likely focused on affordable and mid-priced rentals rather than the most expensive luxury units that most developers are building.
CoStar’s analysis weighs a number of factors in determining the reduction in potential new homeowners resulting from interest rate increases - including a market’s median income, the market’s average home prices, and other factors.
"Assuming that up to 30 percent of a household’s income can be designated for monthly mortgage payments [under commonly accepted mortgage qualification guidelines], a 100-basis-point increase in the 30-year fixed rate would reduce the nation’s potential homebuyer pool by approximately 4.2 percent, or 5.3 million households," according to a report authored by Boston-based managing consultant Jeff Myers, of CoStar Portfolio Strategy.
Full Article HERE