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Rising Homeownership Barriers Bolster Rental Housing Demand

Rising costs restrain prospective homebuyers. Strong interest among buyers for a limited supply of homes for sale drove the median price of an existing single-family home up 14.8 percent year over year to $325,300 in January. Interest remains robust, especially among those searching in the price range below $300,000, as more millennials age into the traditional homeownership stage of life. First-time buyers accounted for 33 percent of existing home purchases in January, up from 31 percent one month earlier. The high cost of homes is being further accentuated by rising mort-gage rates, which reached a five-month high of 3.08 percent during the week of February 19.

Higher construction costs limit inventory. The supply of existing homes for sale in January was down nearly 30 percent year over year. The inventory sat at a record low of 2.0 months of supply. A lack of existing homes available has more people in search of newly built homes. Lumber prices, however, jumped to a record high of over
$1,000 per 1,000 board feet in the third week of February, and the costs of land, labor and other building materials are also climbing.

Rental housing favored as home prices rise. Fewer households are able to quality for a mortgage or are outbid on home offers, further delaying the transition out of the rental market. Despite the unprecedented upheaval caused by the health crisis, multifamily vacancy nationwide rested at 4.4 percent at the beginning of 2021, just 20 basis points above the 19-year low reached in 2019. The average effective rent dipped less than 1 percent from the prior year to $1,410 per month.

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