Zeitgeist – Sign of the Times
Record-Low Homeownership Rate May Be Here to Stay
The country’s homeownership rate is the lowest in nearly half a century. A decade ago, 69.1% of Americans owned a home; today, the rate is just 63.4% – the lowest rate since 1967.
During the past year, total households have grown by two million (from 115 million to 117 million from the second quarter of 2014 to the second quarter 2015) and an estimated 22 million new U.S. households will be formed by 2030. Meanwhile, the homeownership rate continues to fall (declining from 64.7% to 63.4% in the aforementioned 12 month period). Notwithstanding the anticipated increase in new household formation over the next 15 years, a study released by the Urban Institute projects homeownership rates will fall further, to 61.3% by 2030.
While the decrease in homeownership rate is generally not the best news for the economy, owners of apartments and single-family rental homes are benefiting. This trend will have major implications for housing and developers are breaking ground on new apartment projects to keep up with the demand. With household formation rising and homeownership rates declining, many experts foresee accelerated demand for rental housing and continued rent growth for the apartment sector. Axiometrics reported apartment occupancy above 95%, near a record high, and annual rent growth hit 5% in the second quarter of 2015.
The Stock Market – Volatile and Unpredictable
The recent stock market volatility – driven by Chinese economic concerns and a cautious statement by the Federal Reserve following their “steady as she goes” September meeting on interest rates – does not necessarily reflect the reality of U.S. economic health. After all, the unemployment rate has fallen to 5.1% and inflation is well below the Fed’s 2% target. So why is the stock market increasingly volatile if the U.S. economy’s fundamentals are still strong? There is no really good answer – the stock market fluctuates like your teenage daughter’s attitude – unpredictably and often without basis in reality.
Thankfully, today’s real estate market operates largely independently from the day-to-day drama of the stock market. Real estate owners’ balance sheets are no longer as highly leveraged and values are based on the reality of rental revenues and property incomes. Those of us who rent apartments or office suites in popular neighborhoods are painfully familiar with the high rents associated with desirable, well-located properties. Demand for apartments is red-hot and although supplies in many U.S. cities are increasing, rental rates continue to rise with strong job growth and supplies have been slow to catch up. At the end of the day, the economic woes of China and Europe may have an effect on your retirement accounts but don’t expect the rent to decline in your downtown high-rise.
Price Still Right (For Housing in 86 of 100 Cities)
As U.S. real estate values continue to grow, concerns about overvaluation in many markets have also increased. CoreLogic, a real estate analytics provider, recently evaluated the top 100 U.S. metropolitan markets by comparing home price appreciation against the long-term sustainable levels that can be supported by income growth (i.e. if home price growth cannot be supported by income growth a market is deemed to be overvalued). The results indicate that the pricing concerns are unfounded in most markets as housing prices in 86 of the top 100 metro areas are at sustainable or undervalued levels. (Among those in the overvalued category are Nashville, Washington D.C., Austin and Houston). Notwithstanding the 14% of major metros flagged by Corelogic, the vast majority of U.S. markets are still recovering from the 2007-2008 economic decline and Corelogic believes there is plenty of runway for future growth in real estate values.