Is the American dream of home ownership about to be rekindled after a bruising recession forced many potential homebuyers to remain renters? Jay Brinkmann, chief economist at the Mortgage Bankers Association (MBA), says that a closely watched survey of apartment renters shows a precipitous decline in the percentage of renters who intend to renew their lease. The trend signals the possibility that home sale activity this spring could exceed expectations.
According to research firm Kingsley Associates, 59.5 percent of renters surveyed in the fourth quarter of 2011 indicated that they “definitely” or “probably” would renew their lease, down from 60.8 percent in the third quarter. Kingsley surveys more than 1 million apartment units annually on behalf of its clients.
Source: Kingsley Associates’ Kingsley Index
The large drop in the intent-to-renew rate between the third and fourth quarters was somewhat surprising, says Brinkmann, and may have been a function of renters receiving notice of rent increases, prompting them to weigh their options.
The percentage of apartment renters intending to renew their lease reached a high of 65 percent in June 2010, but has since fallen and is now lower than pre-recession levels, according to Brinkmann.
“There are some changing attitudes out there,” remarked Brinkmann during his keynote address at the MBA’s commercial/multifamily real estate finance conference earlier this month in Atlanta. With home prices showing signs of bottoming and interest rates near historical lows, “we may be surprised in terms of how many people come into the home buying market this spring because of this attitude survey,” emphasized the veteran economist.
A 30-year, fixed-rate mortgage averaged 3.87 percent for the week ending Feb. 16, according to Freddie Mac. While that’s a great incentive for buyers, sellers have little reason to cheer. Home prices have fallen 33 percent nationwide since the housing bubble burst in 2006, reports Fortune magazine.
The home ownership rate dipped to 66 percent in the fourth quarter of 2011, a level last seen in 1997, according to the U.S. Census Bureau. The home ownership rate peaked at 69.2 percent in the fourth quarter of 2004 and has gradually fallen ever since.
Buyer-seller sentiment shows gap
The Research Institute for Housing America, the think tank of the MBA, reports that home-buying sentiment is on the rise. “As we came out of the recession, what we wanted to know is if there was a fundamental difference in home-buying attitudes driven by the recession, and the answer is no,” said Brinkmann during his speech.
The homebuyer sentiment index fell during the recession as one might expect, but has recovered to a near normal level, pointed out Brinkmann. Indeed, nearly 80 percent of American households believe now is a good time to buy a home.
Sources: RIHA Study, MBA
Conversely, the sell side of the housing market is dominated by a deeply negative sentiment. “It’s near rock bottom. “The sellers are going to be holding supply off the market,” said Brinkmann.
After the wave of foreclosures works its way through the system and home prices begin to rise, the sentiment of sellers will improve, he believes. “Once we see this change in seller attitude, we may see a little bit more rapid improvement in the single-family home market than before.”
The multifamily sector has been the beneficiary of a depressed single-family home market. The U.S. apartment vacancy rate fell from 5.6 percent in the third quarter of 2011 to 5.2 percent in the fourth quarter, according to New York-based Reis, which tracks 82 markets. The average asking rent rose 0.4 percent in the fourth quarter to $1,064 per month.
Brinkmann’s U.S. economic forecast calls for the creation of 150,000 nonfarm payroll jobs per month on average in 2012 and for the national unemployment rate to finish the year at 8.5 percent. Meanwhile, the 10-year Treasury yield, the benchmark for long-term, permanent financing in commercial real estate, is expected to rise only slightly to 2.5 percent by year’s end.
— Matt Valley