M&M: Homeownership Hits 12-Year Low as Young Households Favor Apartments
Homeownership rates in the United States have hit a 12-year low due to a combination of younger people’s preference for apartments, a low housing inventory that has inflated sales prices and strong absorption in the multifamily sector, according to a research brief from Marcus & Millichap.
Single-family homes are experiencing low inventory compared to demand, with the supply of available homes holding steady for several months. The current supply represents just 3.6 months of sales, a record low, according to the brief. As a result, the median home price increased 7.3 percent on a year-over-year basis to $230,400 in January 2017.
The apartment sector, meanwhile, is still seeing a drop in vacancy despite the fact that deliveries are expected to peak this year. Nearly 290,000 apartments were delivered nationally during 2016, but strong absorption still managed to push vacancy down 20 basis points to 3.9 percent.
According to the brief, “young households’ increased propensity to rent fuels apartment demand, and the absorption of 294,100 units in 2016 was the fourth highest year on record.”
Following this year’s peak, though, Marcus & Millichap predicts new apartment supply will taper off in 2018. Lenders have already begun to tighten the purse strings on construction financing in a rising interest rate environment.
The conventional wisdom among commercial real estate experts is that with the economy showing signs of strength, the Federal Reserve will raise interest rates at its meeting this Wednesday, March 15. Total nonfarm payroll employment rose by a healthy 235,000 in February and the unemployment rate fell to 4.7 percent.
Homebuilders recognize the need for starter homes to attract younger buyers, and are reducing average home size to match. During 2016, the average size of a newly constructed, single-family home fell 1.6 percent to 2,426 square feet.
This is the 12th consecutive year that the homeownership rate has fallen. In December 2016, the homeownership rate for all ages rested at 63.7 percent, a 550-basis-point decline from its peak. The homeownership rate for those under age 35 (“the prime renter cohort”) fell particularly sharply, from a high of 43.1 percent in 2004 to just 34.5 percent in December 2016.
To read the entire brief, click here.
— Jeff Shaw