As apartment investors we are constantly looking at the relevant data and trends which impact our performance. In this article we look at a few key trends in the residential housing space and its impact on multifamily.
The 2013 US residential housing market featured low inventory and low-interest rates, resulting in healthy gains across the country.
Most experts predict the growth to be unsustainable and instead point to several macro economic trends that will impact the housing market for 2014. These trends help the multifamily sector and are worth a deeper look.
Homeownership Rates Continue Decline
As fewer Americans purchase a home for the first time, homeownership rates continue to decline, and could fall below 65% in 2014, equalling levels not seen since the 1990’s.
This declining homeownership rate means a growing renter population and as a result occupancy rates and rents continue to steadily rise.
New Homebuyers are Sitting on the Sidelines
With increased prices and rising mortgage rates, it is not surprising that new homeowners are entering the market at lower than average rates. Historically, 40% of all homebuyers are first-time owners, but current data indicates that number has dropped to 29%.
This trend is especially important to the multifamily sector. Individuals who choose not to buy their home will need to rent instead, and more and more Americans are making that choice.
Rising Mortgage Rates Outpace Income Growth
Most economists predict that interest rates will rise to about 5% this year. While still historically low, the higher rate means the mortgage for a $200,000 home would increase by $160 a month.
For retirees on fixed incomes, or millennials just starting to establish careers, the jump is meaningful and will likely keep many Americans renting vs buying a home in 2014.
All of these trends signify balance returning to the US housing market. And, even though the homeownership rate continues to decline, it remains slightly above historical averages.
During the next 12 months we expect to see the housing market stabilize and the renter population grow. This is a continuation of the positive multifamily demographic trends.