Sharp mortgage rate increases have worsened housing affordability over the past year, forcing more consumers to rent or to continue renting for longer, according to a report published today by S&P Global Ratings. This trend is likely to continue until homes become more affordable, which will support rental housing demand, even in a recession. As a result, fundamentals for both rated rental housing REITs and social housing providers should remain resilient as demand continues to outstrip supply in many markets.
The report, “Real Estate Monitor: Rising Rates Driving Rental Housing Resiliency,” outlines key trends facing the real estate sector, including:
- S&P Global Ratings expects rental rate growth to decelerate, although it will remain healthy over the next two years.
- Moderating rent increases could help tame inflationary pressure as shelter accounts for a significant part of overall consumer spending.
- Demand continues to outstrip supply for housing, particularly for affordable housing. Policies have emerged across some states to relieve housing affordability risks. While regulatory risks are gaining more momentum, these appear to remain manageable for rental housing REITs.
- Operating expenses are modest headwinds that could dampen profitability.