The volatile multifamily market is expected to be steady through next year. The positive impact of more jobs on the number of households will offset the negative impact of higher credit costs. The March dip in mortgage rates will be temporary with 30-year rates expected to top 6% by year end and increase more next year.
Rising interest rates instantly reduce the pool of financially qualified condo and co-op buyers. Some will turn to apartments, as will some priced-out single-family buyers. So the interest rate impact for multifamily is less than in the single-family market.
Rising employment is the principal nondemographic driver of household formation, though there is a several month lag. A large share of the 4 million-plus new employees forecast for 2004-05 will be new labor force entrants or low-wage workers who had been laid off. These groups will be seeking apartments.