A recent study conducted by the Urban Institute forecasts a rising proportion of renters versus homeowners, continuing a trend that has been evident for the last two decades. While it is expected the absolute number of homeowners will grow, the absolute number of renters will grow much faster. It is projected from 2010 to 2030 there will be 4 million new renters than homeowners, or five renters for every three homeowners.
According to the U.S. Census, the homeownership rate peaked at 69.0% in 2006, fueled largely by easy credit. The housing crisis which began in 2007, and the ensuing Great Recession, resulted in a fall in the homeownership rate to 63.7% as of the first quarter of 2015. This is the lowest since 1990. Hope Now, a cooperative effort between the U.S. government, counselors, investors and lenders, estimates that 7.5 million borrowers lost their homes following the housing crisis.
Several factors since the Great Recession have led to this shift away from traditional homeownership. Credit remains historically tight, thereby making it difficult for first-time buyers to get approved for a mortgage. Real wages have been flat over recent years, and coupled with large student loan debt burdens, it has become more difficult for potential home buyers to save for a down payment. Also, marriage and childbearing have been increasingly delayed, causing household formation and homeownership to occur later. A final factor is generational, as there appears to be a preference among millennials to rent versus buy. The end result has been rising rents, declining vacancies and appreciating valuations of multifamily properties. The Moody's/RCA CPPI1 price index shows apartment prices at an all-time high, surpassing its 2006-2007 peak by roughly 25%.
Key Takeaway: Shifting demographics away from homeownership will continue to support favorable fundamentals in the multifamily housing market. The potential surge of the rental population will create demand in rental housing construction, and I feel future supply concerns will be mitigated by continued household growth. From an investment perspective, the commercial real estate securities linked to the multifamily sector have been a strong relative performer over the last few years, and I expect this will continue based on the trends cited above.1. Moody's Real Capital Analytics Commercial Property Price Indices
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