Since the Fed began to raise interest rates in March 2022, housing starts have declined significantly, in particular, multifamily housing starts for rent have declined almost 50%, see the first chart.
Given it currently takes on average 17 months to build a multifamily property, see the second chart, we can produce a forecast for the number of multifamily homes coming to the market this year and next year. The conclusion is that multifamily completions will decline significantly in 2025 and 2026, see the third chart.
Combined with a historically low rental vacancy rate, solid household formation, and an all-time high share of Americans saying that they would rent if they had to move, the bottom line is that rent inflation will start to rise later this year, see the fourth, fifth, and sixth chart below.
Rising rents put upward pressure on OER in the CPI index and will keep inflation higher for longer. With inflation higher for longer, the Fed will also keep interest rates higher for longer.
The bottom line is that inflation remains well above the Fed’s 2% inflation target, and it will require interest rates higher for longer to get inflation back to 2%.
Source: US Census Bureau, Apollo Chief EconomistNote: Single-family homes are 1-unit buildings. Source: Census, Haver Analytics, Apollo Chief EconomistNote: 2025 and 2026 forecasts using data for housing starts and average length of time from start to completion. As housing starts have normalized, completed apartments are also normalizing to pre-pandemic levels. Source: Census Bureau, Haver Analytics, Apollo Chief Economist Source: Census Bureau, Haver, Apollo Chief EconomistSource: Census Bureau, Haver, Apollo Chief EconomistSource: Fannie Mae, Apollo Chief Economist
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