Transcript

(gentle music) - Hey everyone. One of the trends supporting multifamily housing demand has been the reduced transition of renters into home ownership. In 2025, the median age of first time home buyers reached 40 years old. Last year, the median was 38, and in 2022, the median age was 36. Historically, from 1993 through 2018, first time home buyers ranged from 30 to 32 years old. The significant drivers of this upward trend in the home buying age has been elevated interest rates and rising home prices. Today, the average mortgage rate on a house is about 6.3% for a 30 year mortgage. From 2011 through 2020, the average 30 year mortgage rate ranged between about 3.5% and 5%, and in 2020, rates fell below 3.5%, ultimately reaching a low of 2.7% in early 2021. Those low interest rates sparked a surge in home buying activity that was dominated by millennials in their 30s who were in their prime family formation years. Home sales surpassed an annualized rate of 5.8 million houses in late 2020, the highest level since 2006, and that home buying surge pushed single family home prices up aggressively. In January 2020, the median home price was about $283,000. Two years later, in May 2022, the median home price broke 400,000. That's an increase of more than 40% in just over two years. As the Federal Reserve began to raise the overnight rate in 2022 and mortgage rates climbed with it, home sales activity tapered and home price appreciation leveled off. Today, the median price of a single family residence is about $421,000, about 5% higher than it was three years ago. The combination of high home prices and elevated mortgage rates has formed a barrier to home ownership. Based on Freddie Mac income to loan ratios, only about 28% of US households can qualify for the mortgage on a median priced home, and many of those that do qualify for the nearly $3,100 mortgage payment on a median priced home balk at paying nearly $1,200 more per month than the average apartment rent. And that affordability gap in conjunction with more stringent mortgage underwriting standards has boosted the retention rate of multifamily renters. Current apartment renewal rates stand at 55%, well above the long-term average, and that's contributing to the sturdy demand for apartment housing that drove net absorption in 2024 and the first half of 2025 to record levels. Considering that both single family and multifamily construction levels have been tapering, home prices are unlikely to compress in any meaningful way. And that reinforces the likelihood that demand for multifamily rental housing will remain durable in the coming years. Now, single family home sales doesn't just impact multifamily rental demand. It bleeds over into retail real estate as well. About 7% of total retail sales is comprised of home-related products. That includes products sold at stores like Home Depot and Lowe's, as well as lighting stores and furniture stores, and even general merchandise stores like Target and Walmart, where many people purchase small appliances and other home-related products. When you look at home-related product sales on an inflation adjusted basis, they peaked in early 2021, about the same time that home sales peaked. And since then, they've fallen by about 20%. The historical correlation between home sales and home-related retail sales suggests that sales of these types of stores will likely remain range-bound until mortgage rates fall. Nonetheless, vacancy rates at lifestyle and power centers are still just 4.7% as of the third quarter. That's in alignment with the current vacancy rate of grocery anchored and unanchored retail centers, as well as single tenant retail properties. So the elevated cost of houses and the barriers to home ownership will likely be persistent. That will support demand for apartment rental housing and keep home-related retail sales stable until mortgage rates meaningfully decline. A couple of key considerations for investors who keep their eyes on the horizon. (gentle music)