Chart of the week

Housing challenges create opportunity in CRE?

Housing data has crumbled under rapid Fed rate hikes. This week’s chart looks at how declining housing investment may mean opportunity in CRE.

July 29, 2022 | 2 minute read

Housing starts and 30-year mortgage rate

Source: Federal Reserve Bank of St. Louis, as of June 30, 2022. Multifamily units represented by buildings with five units or more.

  • Amid soaring home prices and endless demand, the U.S. housing market has been front and center of many investors’ minds since the pandemic began more than two years ago. It remains a focal point today as economists increasingly look to it as an economic bellwether. 
  • The rapid pace of Fed rate hikes this year, including another 75-basis-point hike this week, have notably dampened housing demand as declining affordability and economic uncertainty increasingly push homebuyers out of the market.
  • Single-family homebuilders continue to pull back amid waning demand. Single-family home starts (orange line) have declined approximately -20% since February and remain nearly -50% below their pre-global financial crisis (GFC) peak.1 Declining home construction activity was a significant driver of negative Q2 headline GDP growth.
  • A prolonged pullback would exaggerate the secular undersupply issues that have dogged the housing market since the GFC, potentially amplifying affordability issues.
  • In stark contrast, multifamily commercial real estate (CRE) continues to shine bright. The largest CRE property type, it has seen strong price growth throughout the pandemic, continued building (black line), has low vacancy rates amid strong demand for rental properties and ample liquidity.
  • Amid stubborn and broad-based inflationary pressures, investors may be wise turning their focus toward alternative investments and real assets that have historically offered the potential to serve as solid inflation hedges, including commercial real estate investments.

  • Federal Reserve Bank of St. Louis, as of June 30, 2022.

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