With the average 30-year mortgage rate recently hitting 8% for the first time since 2000 and home prices remaining elevated, homeownership remains increasingly out of reach for the over 44 million renter households in the country.

This is of particular concern in South Florida, where home prices have risen by 62% since 2019. That is well above the 44% rise seen across the U.S. during that time.

The disconnect between home prices and median household incomes has increased sharply in South Florida and is now twice as bad as the national average. The lack of affordable housing should continue to present challenges for local households, though it should present a tailwind for renter demand as long as home prices and mortgage rates remain elevated.

For now, it appears that mortgage rates will indeed remain higher than originally anticipated as market expectations now predict the trajectory of the federal funds rate to move up, according to the Atlanta Federal Reserve Bank.

During the summer months, the market expected more significant rate cuts after the second half of 2024, leading to a Fed funds rate below 3% and mortgage rates below 6% by 2025. Due to stronger-than-expected economic data coupled with still-elevated inflation, the market is now pricing a higher fed funds rate after rate cuts begin in 2024. These current projections will result in much higher mortgage rates of around 7% through 2025, which should keep pressure on housing affordability.

The probability of a hike at the December meeting is still in play, though this has fallen from a 40% probability to 17% due to the latest fed pause, according to the CME group. Going forward, a continuation of stronger-than-expected retail sales and consumer spending data, which may put further pressure on inflation, could result in a resurgence in a December hike probability. Though, for now, a recent rise in continued unemployment claims, which points to some softening in labor market conditions, has increased the likelihood of no further rate hikes.

A Fed pivot by mid-2024 is also still in play, with the probability of at least one rate cut by the summer of next year continually rising over the last few months to 40% today. Still, rate cuts are expected to slash interest rates gradually by 25 basis points, which will result in a gradual easing of mortgage costs post-2024.

Tight financial conditions in the foreseeable future should continue to provide a tailwind for the apartment rental market, specifically in South Florida. Since 2010, renter households have grown at a more rapid pace in South Florida than the nation, rising over 31% versus a 16% rise nationally. The South Florida market has historically had a greater share of renter households than the nation, with renters now making up over 40% of households. That is up from 35% back in 2010 and well above the national average of 34%.

Going forward, elevated home prices driven by a lack of available for-sale housing, high insurance costs and high mortgage rates will likely continue to limit homeownership in South Florida. However, a rise in apartment completions over the next few years should provide some relief to local households, allowing renting to remain the most affordable option for South Floridians.

Apartment demand accelerated in the third quarter of 2023, with over 3,200 units absorbed across South Florida during the quarter, above the five-year average quarterly absorption figure of just over 2,900 units. Currently, CoStar expects annual apartment demand growth to return to trend by mid-2024, which should help buoy fundamentals that are increasingly pressured by a growing supply pipeline.

Still, a softening in apartment rent growth is a welcomed sight for cost-burdened renters. Softer rent gains, along with a rise in concessions driven by increased apartment competition, should make many apartments attainable for renters, especially within the most affordable areas of the region.