Higher-for-longer mortgage rates feed apartment demand and keep prices falling

Chad Tredway, global head of real estate at J.P. Morgan Asset Management, gave multifamily investors a one-line bull case in a Sept. 4 Commercial Observer report on higher-for-longer mortgage rates: buying a home is roughly 50 percent more expensive than renting one. The affordability numbers behind that comparison do the sector’s marketing for it, and the same rate backdrop that keeps renters renting has also kept apartment prices falling. Monthly mortgage payments on the median home have effectively doubled since before the pandemic, home values are up about 60 percent since 2019, and Tredway puts housing affordability at its lowest level in a generation.

The rate background for that call is one of persistent elevation: the average U.S. 30-year fixed mortgage was 6.66 percent in the week ending Aug. 27, according to Freddie Mac’s Primary Mortgage Market Survey, up from 6.56 percent a year earlier and more than double the 2.67 percent average of December 2020. Rates first crossed 6 percent in the week ending Sept. 15, 2022, hit 6.02 percent, spiked toward 8 percent in late 2023, and spent only a short stretch below 6 percent in late February 2026 before climbing again after the war with Iran began in late winter. The higher-for-longer assumption that underwriting teams once treated as a stress case has become the base case.

Commercial Observer frames the property-market consequence as a split: expensive home borrowing puts downward pressure on condominium developers, while multifamily and adjacent single-family rental owners benefit from more renters and fewer buyers. Tredway argues the effect is not just stronger leasing traffic but a change in how long households remain renters, because the affordability gap is wide enough that the rent-versus-buy decision is no longer a close call for many households, which means landlords are holding onto tenants who in an earlier rate era would have graduated into mortgages.

The supply side reinforces the demand-side lift, with Tredway cautioning that the single-family for-sale pipeline is contracting, construction starts are down roughly 70 percent, and multifamily development is trending lower as well. Builders are not going to relieve the affordability pressure by adding inventory, so less new supply means the renter pool is captive not just today but through the next delivery schedule. That combination — a larger pool, longer stays, and a thinning pipeline — is what he expects to produce healthy rent growth and more deal flow for apartment assets.

The wrinkle between the operating story and the asset-pricing one shows up in Private Real Estate Daily’s July review of RCA’s CPPI, which found a ninth straight monthly drop in apartment prices, even as CBD office prices gained 9.9 percent. That divergence is not evidence that investors doubt the rental thesis; it is the market adjusting to the same rate regime, because elevated interest rates push capitalization rates upward and cap-rate expansion lowers prices even when net operating income is growing. The apartment price decline and the apartment demand boom are two outputs of the same higher-for-longer input.

The buyer response is the healthy one, because apartment capital is paying for operations and renovation upside while cap rates reset upward, and a rate environment that gives apartment owners a captive customer pipeline is exactly the environment in which that strategy should outperform pure yield acquisition. Operators who can hold residents through lease renewals, renovate units between tenancies, and manage the cost side of the business are the ones who can convert rental demand into net operating income growth faster than the cap-rate reset eats into values. The passive buyer underwriting static rent rolls at today’s rates is underwriting against the one part of the market that has not yet cleared.

For sponsors and lenders, the practical read of Tredway’s math is about the kind of asset they should be financing. The for-sale market is not going to reclaim its role as the chief competitor to apartment leasing until mortgage rates fall enough to shrink that 50 percent gap, and nothing in the current rate data points to a quick move. That argues for underwriting the workforce and garden product closest to the starter-home buyer, where the affordability shock is deepest and the renovation upside is most attainable, and for rejecting the temptation to treat today’s cap rates as temporary noise. The rate regime has already made renting the rational default for a large cohort of potential buyers; the remaining question is which owners will make money delivering the housing those renters need.