Tag Archives: Renting

Net New Renters 1.4 Million, Net New Home Buyers 0

Freddie Mac

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Freddie Mac released today its U.S. Economic and Housing Market Outlook for October showing that the rental market is doing well with many of households under 30 are opting for renting vs buying.  This is pushing the new households into “new renters” while adding no New Home Buyers.

If you have been reading this blog for a while, you will notice we have covered this in a bunch of posts. (pent up demand).   Although there is really nothing new, this is still a nice national perspective summary from the big picture.

“Much of the rental demand is from young and newly formed households who have decided to postpone homeownership in favor of renting during unsettled economic times. Indeed, the decline in the homeownership rate has been sharpest for those household heads under 30 years of age: While the U.S. homeownership rate has fallen about 1.5 percent over the past year (from 66.9 percent to 65.9 percent during the second quarter of 2011), owner rates have fallen by 4.4 percent (to 21.9 percent) for those under 25 years of age and by 7.0 percent (to 34.7 percent) for those aged 25 to 29 years,” said the Frank Nothaft, Freddie’s chief economist.

Outlook Highlights

  • Over the year ending mid-2011, the Census Bureau reported a net increase of 1.4 million households that moved into rental housing, a 4 percent rise in the number of tenant households in just one year.
  • The U.S. homeownership rate has fallen about 1.5 percent over the past year (from 66.9 percent to 65.9 percent during the second quarter of 2011) with owner rates falling by 4.4 percent (to 21.9 percent) for those under 25 years of age and by 7 percent (to 34.7 percent) for those aged 25 to 29 years.
  • Apartment rents, which had been flat to falling in many projects during the 2008-2009 recession, have begun to rise, albeit slowly.
  • New construction starts of apartments in buildings with at least 20 dwellings has picked up this year, and in the second quarter was the highest since the end of 2008.
  • Ten-year constant-maturity Treasury yields averaged 1.98 percent in September, the lowest monthly average since the Federal Reserve’s series began in 1953; these yields are a common benchmark for multifamily mortgage rates, and suggest that mortgage rates fell to new lows for multifamily lending in recent weeks.

Read the Full Freddie Mac October 2011 Economic Forecast

I believe if we can turn enough of the economic corner to allow these under 30 renters feel confident enough in their employment, they could enter the market and turn this housing market around in no time.  Sometimes I even wonder if we won’t be coming out of this down cycle straight into a housing boom as so many years of these first time homebuyers have been stuck into renting.  Time will tell.

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High School Years and Future Housing Demand – More on the Pent up Demand

High School Years and Future Housing Demand.

This is an interesting article from the National Association of Realtors showing the future demand for housing.  They looked at the 15 to 19 year olds and the demand for housing they will require as they move out of Mom and Dads house.

NAR is speculating there will be greater demand going forward for rentals (apartments, multifamily) to meet this age groups needs for housing.  I partially agree with their conclusion with a couple of exceptions:

The early 2000’s generation moved directly into homeownership bypassing the rental phase for the most part so not a lot of rental properties were constructed.  The other main reason, and more importantly why additional rental properties weren’t built is because of costs.

During the 1960’s and 1970’s apartment buildings could be constructed at relatively low costs.  If you go through some of these older apartment buildings you will notice a couple of things right away, the wood frame construction and the lack of wheelchair access.  You will also notice all the cooking smells, this gets into the HVAC system differences.  Many of these buildings were built with 2×4 construction and either “garden style” (similar to split entry in single family), and lacking elevators.

If you look around and think about any “newer” apartment buildings, what do they have in common?  1) they are in high rent areas and 2) they are very large  3) they “amenities” such as pools and fitness rooms.   These new rental units need to be in locations that can demand a lot of rent in order to make the economics work for the construction costs. There also needs to be a lot of units to make the economics work for adding elevators and other building code requirements that weren’t around 30+ years ago.   Unless the economic formula changes or building codes change,  I don’t foresee builders supplying the need for additional apartments for this demographic in the marketplace.  The days of building a 4 unit to 30 unit building are gone.   This will put additional demand on rental housing, duplexes, four-plexes and single family homes.

I could be wrong, there is a lot of apartment units going up around the Twin Cities now – in high rent areas.  The market may be overbuilding apartment units which could force rents lower to pull in this demographic.  But as they are targeted now, the rents are too high for this demographic group just starting out.


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Time to buy rental properties?

After looking at the stock market crash, this is really looking to me like the safest place to put money right now…

Buy some homes for rental properties.  (on the right column – use my spreadsheets to analyze rental properties to see if the investment makes sense for you.)

Star Tribune Article on rental vacancy


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