Research Brief: Housing January 2023

Muffled Home Market and Rental
Demand Signal Household Creation Slack

Excerpt of Full Report:

Hushed activity across housing conveys hurdles. Single-family home sales declined for an 11th straight month during December 2022, down more than 30 percent annually. The rate of home purchasing has not been this slow since the tail-end of the global fi nancial crisis in 2010. Persistent obstructions include still-high home prices and elevated borrowing costs, in addition to broad economic uncertainty that makes individuals hesitant to undertake major life moves. None of these hurdles are likely to abate in the near term. The Federal Reserve is intent on cooling infl ation, sustaining pressure on interest rates. Meanwhile, the number of home listings sits about 33 percent below the past decade average, reinforcing prices. At the same time, the number of occupied apartment units fell by almost 200,000 nationwide from the fi rst quarter of 2022 through the end of last year. Soft demand in both housing sectors implies household creation is ebbing.

Employment gains not translating to new households. The addition of jobs supplies residents with incomes and typically relays into the ability to form households. However, this has not been the case, even as 200,000-plus roles were added during each month spanning the past two years. Despite this labor market strength, household creation has weakened, resulting in low home sales and rental absorption. This is partially due to the nature of job growth, most of which has been recovered from pandemic losses, rather than created organically. Moving forward, a multifamily rebound may be comparatively easier, as interest rates and saving for a down payment are not considerations. Economic conditions and cost-of-living concerns, however, directly impact rental decisions.

Pent-up demand in young adult cohort is crucial for a rebound. High school and college graduations taking place during the fi rst half of the year usually result in young adults joining the workforce and moving out on their own. Although, in 2023 reduced job prospects and price sensitivity could subdue this fl ow. The result may be continued pent-up demand. Last year, more than 23 million individuals in the 18- to 34-year-old cohort lived with their parents, which was roughly 3 million above the long-term average.

developing trends

Construction costs stabilize, rather than retreat. The index tracking building costs went up less than 1 percent across the past six months. However, downward pressure on prices is nonexistent, with the index rising in every interval since December 2021. Higher material costs and interest rates contributed to residential project permits falling 30 percent year-over-year to end 2022.

Denver Office:

Adam Lewis Vice President, Regional Manager

Tel: (303) 328-2000 | adam.lewis@marcusmillichap.com

Prepared and Edited By:

Benjamin Kunde Research Analyst | Research Services

For Information on national multifamily trends, contact:

John Chang Senior Vice President, National Director | Research Services

Tel: (602) 707-9700 | john.chang@marcusmillichap.com

The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated based on the last month of the quarter/year. Sales data includes transactions sold for $1 million or greater unless otherwise noted. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice. Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Real Capital Analytics; RealPage, Inc. © Marcus & Millichap 2021 | www.MarcusMillichap.com