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Citi Global Wealth UNSToPPABLe TreNDS | | 73 Investments Almost no asset class escaped the turmoil of That is more than double the level six years However, they are still broadly cheaper than 2022. That includes real estate, where pressures earlier. Compared to previous generations, getting a new mortgage. On average, a typical included increased financing costs, rising millennials – those born from the early 1980s to monthly mortgage payment was $904 more capitalization rates and inflation. Looking ahead, around 2000 – are likely to end up renting for expensive than a typical monthly apartment 1 there is potential opportunity to exploit market longer before buying their first homes. rental payment as of Q3 2022. Four years ago, inefficiencies, invest in assets at potentially a mortgage cost only $387 more than renting – cheaper levels and reposition properties to meet That said, renting is not especially easy now FIGURE 1.2 shifting consumer demand. Also, long-term either. Rents too have risen sharply since 2021. trends such as digitization, more flexible working and delayed household formation are continuing FiGUre 1. MorTGAGe PAYMeNTS Go THroUGH THe rooF to transform real estate. Inflation poses a particular challenge. The MORTGAGES SUBSTANTIALLY OUTPACE RENTSMORTGAGES SUBSTANTIALLY OUTPACE RENTS cost of renovating and developing has risen sharply since the start of the pandemic. And the $2,800 consequent rise in interest rates has made it more expensive to finance real estate projects. All this can potentially reduce returns for 2,350 Mortgage payment investors. That said, continued rent growth in certain sub-sectors like multifamily apartments $904 and e-commerce–related industrial properties are mitigating headwinds. 1,900 We thus look to sub-sectors of real estate that Monthly Payment we think may be best placed to perform under $387 $222 these conditions. 1,450 Apartment rent Resilient multifamily homes 1,000 15 16 17 18 19 20 21 22+ Getting on the housing ladder is challenging right now. The US mortgage rate sat near a Source: Marcus & Millichap, as of September 2022. 20-year high of 7.14% as of 9 November 2022. 3 To buy a property, the minimum annual income Chart shows average mortgage payments and rental payments on an apartment from 2015 through September 2022. needed was over $120,000 as of June 2022. 1 US Bureau of Labor Statistics, September 2022 2,3 Marcus & Millichap, September 2022

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