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Real Estate Big Data

Are rentals winning the war for millennials? Is a “rentership society” inevitable?

Some think rentership will be permanent for a segment of the market, so we look at the endless data behind these claims.



In 2011, during the high water mark of the foreclosure flood, an analyst at Morgan Stanley named Oliver Chang foresaw a sea change in the way Americans are housed. He coined the term “rentership society” to describe how the nation was moving from away from the culture of homeownership. Six years later, despite a vigorous housing recovery and the coming of age of the largest generation of potential homeowners, Chang’s vision is coming true.

Is the millennial miracle running out of time? Every year that passes with too many Millennials still living in rentals is another year without the sales, commissions, and new mortgages that demographers promised.

Two years ago, 2015 was to be the Year of the Millennial. Then, 2016 was to be the REAL Year of the Millennial. No one has yet shown the chutzpah to name 2017 yet another Year of the Millennial. Is a window of opportunity is closing?

Are the bulk of millennials missing ideal conditions for homeownership that they will ever see again: relatively affordable prices in the wake of the housing crash, low-interest rates, and soaring rents?

Some hard numbers:

  • Though total home sales have flourished, the first-time buyer market share began to shrink in 2013 and today seems to be stubbornly stuck at 30 percent, the lowest level since 1987.
  • Millennials have had little if any impact on the homeownership rate. After a minor uptick during the last two quarters of 2015, the national homeownership rate resumed its eleven-year decline to 63.5 percent, just one-tenth of a percentage point above last year’s 48-year low.
  • Younger age groups are leading the homeownership decline. Homeownership among those 35 and younger fell from 47.5 percent to 39.2 percent from 2007 to 2015.

The worst may be yet to come. Real estate economists at the Wharton School of Economics are forecasting a further decrease in homeownership to 57.9 percent by 2050, but they believe it is possible for the homeownership rate to decline from current levels of around 63.5 percent to around 50 percent by 2050, 20 percentage points below its peak in 2004. Demographics, credit conditions, and the relationships between rents and housing cost increases account for the gloomy prognosis.

Millennials with homeownership dreams have endured much. The Great Recession sent many to live with their parents. Lenders responded to the financial crisis they helped create by raising lending standards to protect themselves at the expense of first-time buyers Investors have converted more than 5 million homes into rentals and are still looking for more. Move-up buyers can’t move up because either they lack the equity to sell or they can’t find an affordable home to buy.

Time will lower most of these barriers. New homes will slowly replenish inventories. Equity will return to even recovering markets like Las Vegas and Phoenix where foreclosures ravished home values most.

One huge barrier that time won’t fix is the rising cost of entry into homeownership. To young families struggling to keep their housing costs under control, home prices are rising too quickly. Since the first quarter of 2012, the median asking price for a home has increased 20.6 percent, according to the Census Bureau. Prices of affordable homes in lower price tiers have increased much more, especially in hot markets. During the same period, rents have skyrocketed. Over the past four years, the median asking rental prices have risen 46 percent per unit. Draconian rent increases have become a major motivation for millennials to buy. However, it’s much easier for supply and demand to lower rents than home values.

The multifamily construction boom

While first-time buyers have been stuck at a 30 percent market share, demand for rentals has boomed. Rental demand has increased by nearly 9 million households from 2005—the largest gain in any 10-year period on record. The share of all US households that rent, rose from 31 percent to 37 percent, at the expense of homeownership.

The record-breaking demand is about to meet record-breaking supply. When the bulk of the millennial generation started looking for rentals, developers and investors took note and began the greatest apartment building boom of the past 50 years.

Siting, permitting, and construction of an apartment building take 11 to 13 months, depending on the size. Buildings that were blueprints in 2013 are now opening for business. Last year, completions soared, reaching 306,000 multifamily units, the most new multifamily construction to come online since the peak of the Baby Boomer boom in 1987. Permitting for new multifamily continues to climb, up at a nearly 17 percent average annual rate through the third quarter of 2015, suggesting that as many or even more new apartment units will open for business in 2016 and several years beyond.

From 2005 to 2015, the total rental housing stock expanded by approximately 8.2 million units, about the same as total existing home sales over a year and a half. New multifamily construction was responsible for roughly a fifth of this increase, conversions of single-family homes from owner-occupancy and other uses accounted for the lion’s share of growth.

Some 5 million homes, largely the affordable starter home that is so in demand by millennials today, have been converted to rentals. Even though the foreclosure era has ended, conversions continue as investors profit from rising rents and appreciation. Investors’ monthly market share currently is about 14 percent, nearly half as much as first-time buyers.

Cracks are showing in rental rates

Rentals are soaking up much more demand that ownership properties, but cracks are beginning to show, suggesting that we are the cusp of a sea change in the dynamics of rentals vs. ownership. Home price appreciation is continuing to accelerate, surpassing forecasts and rising 5 to 7 percent this year, while the massive investments in new rental capacity are starting to show in the marketplace.

Rental growth has been slacking off since the second quarter of last year. Annual effective rent growth fell to 4.1 percent in the first quarter of 2016, an 89-basis-point decrease from the 5.0% a year ago and 52 bps lower than the 4.6% reported in the fourth quarter of 2015.

effective rent growthRent growth has been moderating since the middle of last year. Source: Axiometrics
zillow rental dataZillow’s analysis shows home values outpacing rents this year.

MPF Research reports that they are seeing definite signs of cooling in certain markets, including the Bay Area, which has been the nation’s hottest apartment market for this cycle but is recording several months of easing rent growth numbers. Here’s analysis showing where rents are slowing in the hottest for sale markets (below):
america's hottest markets 2016 q1Sources: S&P Case-Shiller and Rentonomics.
*Price increases are January 2015 to January 2016. Rent list increases are April 2015 to April 2016

As strong as rental demand is today, it’s likely that new construction and continued conversion of single family homes into rentals will result in overbuilt markets, a chronic problem in multifamily housing. Rents are certainly going to flatten within the next few years, and even retreat as capacity outstrips demand.

Will cheaper rents usher in the “rentership society”? Or will they simply make it easier for those millennials committed to homeownership to save for down payments and bide their time in the hope of finding entry-level homes in their markets? For many young families, reasonable rents may leave them with no other option.


Real Estate Big Data

NAR Chief Economist predicts housing market uncertainty

(BIG DATA) Warning bells on the housing market have been ringing for over a year. While this prediction isn’t a surprise, it’s disappointing news.



Multitude of colorful homes representing housing market.

The housing market is booming. Many experts are concerned about another bust like we experienced in 2008, but the conditions are much different today. Homeowners aren’t extended like they were when the market crashed in 2008. National Association of Realtors® Chief Economist Lawrence Yun suggests that the housing market is still uncertain, even though he says, “housing kept the economy afloat” during the pandemic.

What is impacting the housing market? 

Yun cites record-low inventory and inflation as “curveballs” to the housing market. Many economists, including Yun, have been concerned about low inventory for many years, especially in certain markets. Even though builders are working hard to construct new residences, supply chain and labor issues are not accelerating the process.

Yun is more concerned about inflation impacting the housing market. He says,

“wages have risen by 6% from one year ago…but inflation is 8.5%.”

Rising mortgage rates have made mortgages cost $300 to $400 a month more, according to Yun. Many working families can’t afford that. Yun predicts inflation is going to be high for several months. The market will slow as the Federal Reserve raises rates.

Yun also cites the Russia-Ukraine war as another contribution to the uncertainty of the market. The war is also driving inflation, not just overseas, but in the United States. With gas prices climbing higher each week, this is impacting the housing market.

Is real estate a good investment in this market?

Last year, when Yun opened the Residential Economic Issues & Trends Forum at NAR’s annual REALTOR® Conference & Expo in San Diego, he expected the “housing sector’s success to continue,” but he did suggest that 2022’s performance wouldn’t exceed 2021s.

“Rising rents will continue to place upward pressures on inflation,” he said. “Nevertheless, real estate is a great hedge against inflation.”

There’s a lot we don’t know about the future. It’s disappointing to think that the housing market may be uncertain, but real estate is still a good investment.

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Real Estate Big Data

Housing starts stagnate, market conditions are rapidly shifting

Housing starts for April stagnated, marking the second consecutive months of declines, and more renters being left out of this shifting market.



construction home growth housing starts

Housing starts stagnated in April, down 0.2% from the prior month, according to the U.S. Commerce Department.

The sentiment appears to be that although this marks the second straight month of dips, most are seeing today’s news as a positive, especially as construction of new homes was expected to fall 2.4% in April.

Further, housing starts are up 14.6% from April of last year, driven primarily by multifamily construction.

But it’s worth not getting overly excited, given that permits dipped 3.2% in April which is a forward-looking indicator, so expect starts to continue cooling in a time where we quite need the inventory.

Demand for housing inventory remains high, but the National Association of Home Builders reports today that confidence in the single-family housing market fell dramatically in May, marking the lowest level in two years.

Dr. Lawrence Yun, Chief Economist at the National Association of Realtors said in a statement, “The worst of the housing shortage is ending, but market equilibrium between supply and demand is still some ways off.”

He notes that as mortgage rates increase, builders “are chasing rising rents, with fewer homebuyers and more renters being forced to renew their leases,” noting that even prior to the interest rate increases, rents were rapidly rising and vacancy rates rapidly declining.

Pointing to another market shift, Dr. Yun notes that “Some degree of a return to the office is also fueling back-to-city living where high rises are concentrated.”

That’s a problem.

“Even as home sales look to trend back to pre-pandemic levels after the big surge of the past two years,” concludes Dr. Yun, “inventory will not return to pre-pandemic conditions. That means home prices will get pushed even higher in the upcoming months, albeit modestly, given the supply-demand imbalance.”

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Real Estate Big Data

Home prices jump double digits in majority of American metros [report]

(REAL ESTATE) Housing affordability was already a widespread challenge before current economic pressures were applied, but now home prices are skyrocketing.



homeownership home prices

As home sales slide and mortgage rates rise, home prices in 70% of 185 measured metros saw a double digit annual increase in Q1, according to the newest data from the National Association of Realtors (NAR), up from 66% in the previous quarter.

The Southern region accounted for 45% of home sales in Q1, and experienced a 20.1% increase in annual home prices (compared to 14.3% just the quarter prior). Home prices in the Midwest jumped 8.5% annually in Q1, while The Northeast rose 6.7%, and the West increased 5.9%.

The median sales price of a single family existing home has now hit an astonishing $368,200.

“Prices throughout the country have surged for the better part of two years, including in the first quarter of 2022,” said NAR Chief Economist, Dr. Lawrence Yun. “Given the extremely low inventory, we’re unlikely to see price declines, but appreciation should slow in the coming months.”

Yun expects supply levels to improve, and for “more pullback in housing demand as mortgage rates take a heavier toll on affordability,” given that “there are no indications that rates will ease anytime soon.”

At first blush, price appreciation sounds lovely to anyone that owns a home, given that it is the largest investment most Americans will ever make.

But regarding today’s report, several homeowners told us that they now feel trapped, and that if they sold their current home, even if they purchased a new house at that same price, they would likely have to downgrade.

Affordability is an ongoing problem weighing down the housing sector. NAR reports that the monthly mortgage payment on a typical existing single-family home with a 20% down payment rose to $1,383 (up $319, or 30%, from one year ago). Families now typically spend 18.7% of their income on mortgage payments (but only spent 14.2% one year ago).

“Declining affordability is always the most problematic to first-time buyers, who have no home to leverage, and it remains challenging for moderate-income potential buyers, as well,” Dr. Yun observed.

Map of how home prices are behaving nationally

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