The U.S. Census Bureau recently reported the homeownership rate rose to 63.9 percent in the third quarter, which is the highest level since 2014. The rate is only up from 63.7 percent in the second quarter, but the fact that this rise is coinciding with sluggish reports from the rental sector may indicate that young adults are fleeing rentals for the housing market.
Investors have devoted tens of billions of dollars to the multifamily sector, believing that the millennial generation wouldn’t become homeowners and would choose to rent instead. But now investors are sensing trouble. “Up to now, there really hasn’t been a chink in the armor of rent growth,” John Pawlowski, an analyst with Green Street Advisors, told
The Wall Street Journal.
And it's not just apartments either; American Homes 4 Rent, which owns more than 50,000 single-family rental properties in 22 states, reported sluggish revenue growth in the third quarter. Analysts predict that pain in the rental sector will first be felt by these house-for-rent operators, which tend to own units in more affordable, nonurban markets. Renters in these situations have already opted for a single-family lifestyle and may be more likely to become homeowners, analysts say.
Economists have also warned of oversupply in the multifamily sector. In September, there were 596,000 apartments under construction (seasonally adjusted). That is nearly double the long-term average of 300,000 units. The national vacancy rate has jumped to 3.5 percent compared to a year earlier, according to John Chang, head of research for Marcus & Millichap, a real estate services firm. Rents are up 3.5 percent in the third quarter when compared to 2016; the previous year that number had risen 4.5 percent over the 2016 and 2015 third quarters, Chang noted.
Some multifamily investors say they aren’t worried about the rise in homeownership rate or fears of oversupply in the multifamily sector. The homeownership rate is still below its historic norm of 65 percent. But more millennials are getting married and having children, and that could be an important catalyst to watch over the next five years, Chang told
The Wall Street Journal.
“We’re at the leading edge of transition,” Chang says.
Source: “Millennial Home Buyers Send a Chill Through Rental Markets,” The Wall Street Journal (Nov. 7, 2017) [Log-in required.]
