There are a few obvious reasons that the apartment sector is so hot right now – the mortgage mess and long term soft economy get most of the blame. What is strange though is that by most accounts we have seen a comeback - but the comeback is not being accompanied by a strong rebound in single family housing unit sales. This article makes a fascinating observation that I believe make sense - and I have witnessed anecdotally. If this is true, I believe that it means it will be even longer until enough new apartment units can be built to satisfy the long term demand.
This report from CNBC was first broad cast in February of this year, and since it has aired I have noticed this phenomenon being cited on a regular basis. Read on and I will have more to say on the other side of the article. Michal
Why Women are Driving the Demand for Rental Apartments
CNBC Realty Check with Diana Olick
The housing market is supposedly roaring back. Home prices are seeing their biggest annual gains since 2006.
Renters must be rushing back to buy, right? Not exactly.
In fact, even as housing and the greater economy improve, a shift in demographic trends will likely favor the rental apartment market for the foreseeable future. It is all about women.
“I rent in an apartment building because it gives me a certain amount of freedom: I’m not positive that I want to stay in D.C. long term, so I could leave at year’s end if I wanted to,” says 25-year-old Caitlin Huey-Burns, a journalist. “My building has nice, built-in amenities, and it’s in the location I want, but where I know I wouldn’t be able to afford to buy.”
Most of Huey-Burns’ single, female friends, some in their thirties, who live in major cities also rent in apartment buildings. Just one owns, and she lives in Canton, Ohio.
“What drives demand for single family homes is, ‘Oh honey, I’m pregnant,’ ” says Buck Horne, a housing analyst at Raymond James.
But those words are being uttered less and less. Horne claims the shift in female education, marriage and fertility rates will drive rental apartment demand going forward. He points to a growing educational imbalance — 3.1 million more women enrolled in college than men and 4 million more college-educated women in the workforce than men.
“That creates a structural imbalance in the number of suitable partners. Women leave college with good income prospects and are not finding suitable husbands and fathers,” says Horne.
Consequently, the millennial generation is delaying marriage and motherhood, and birth and fertility rates are dropping. The female fertility rate is at its lowest level in recorded U.S. history, according to the Centers for Disease Control/Raymond James research. About 41 percent of children are born out of wedlock. Horne’s research finds single mothers prefer living closer in to cities and staying in full-amenity apartment rentals. This all points to more structural, long-term demand for rental housing.
But, again, shouldn’t that rebound in home prices and growing confidence in housing still push more renters to buy, despite the female argument? Investors certainly think so. While stocks of the nation’s homebuilders are up over 60 percent from a year ago on the PHLX Housing Sector Index, multi-family REIT’s actually under-performed and inversely correlated to home builders.
Investors were concerned about the single-family home recovery stealing renters. But should they be?
No, according to a recent Raymond James report:
Renter household formation remains at the strongest level in decades. Roughly 1.32 million new renter households were formed in the past year (including owner conversions), while the number of owner-occupied households declined by 175,000. Resident turnover and move-outs to homeownership remain near historic lows for most operators. Incoming leasing traffic is more than offsetting move-outs while paying higher rates.
The home-ownership rate declined yet again in the fourth quarter of 2012, according to a new report from the U.S. Census. It now stands at 65.4 percent, down from 66 percent a year ago and from a high of 69.2 percent in 2004. If you include the 5.3 million borrowers who are delinquent on their mortgages or in the foreclosure process, per Lender Processing Services, the real home-ownership rate is even lower.
“The fact that the housing recovery is being driven principally by investor demand means that the slight decline in the homeownership rate in the fourth quarter is unlikely to be the last,” notes Paul Diggle of Capital Economics.
There is also a tremendous amount of pent-up demand for the rental market, as nearly 23 million young adults, male and female, under age 35 (31 percent of the cohort) are currently classified as “living at home” with parents, according to Raymond James’ analysis. As job growth improves, they will move to rental apartments; the homeownership rate for this group is only 34 percent.
Investors are also concerned about a 49 percent jump in multi-family construction permits from a year ago, but those permits are still running well below normal levels, and every year about 150,000 units are removed from housing stock for various reasons, like age and damage.
Suffice it to say the apartment sector and the multi-family REITs will likely see a surprise to the upside in 2013. Rents will still rise, despite housing affordability and growth in the single-family market.
As I read this and as I am getting ready to send my first child out of the nest soon, it dawns on me that this newest generation has seen first hand that owning a house is not necessarily a license to print money. They also seem to put more stock on convenience and being “in the mix” than past generations and don’t seem as willing to buy way off the beaten track in order to afford a home. When I couple this with the other information in this article about the demographics regarding education and opportunity between the sexes, I continue to be bullish on Apartment Investing.
Some other things that this tells me is that you will probably see a renaissance of really bad properties that are “close in” much like you saw the re-gentrification of single family houses in the inner cities 20 years ago. This kind of news makes me more likely to be willing to buy a low C class or high D class project in an upcoming urban area.
Lastly, we have all known for quite a while that when renting or selling to a couple, the women generally drive the decision. Therefore security and functionality are top priorities when getting them comfortable with your projects.
Make no mistake about this, this could be a huge and far reaching shift in the way real estate works. While changes occur the thing to watch is the rate at which equilibrium seems to be coming into focus. We are already in a situation where the economists are predicting increasing supply shortages for the next two years at which point we will be close to 5 million units short of demand.
If there is an additional shift in demand for rentals over single family that equilibrium point could be pushed out even further. Once the new supply and demand point are being met there still needs to be at least 5 million additional units brought to market. While this will undoubtedly lead to additional building, the fact remains that wise investing in multi-family looks like a good choice for a long time. Looking forward to helping you get your piece of the Apartment Investing pie… Michal.
If you would like to take advantage of the tremendous opportunities that surround us in the foreclosure apartment market right now – I HIGHLY suggest you listen in to Michal Ballard in his Live, Special Webinar Event “Earn Huge Profits Investing in Apartment Foreclosures in 2013 and Beyond” this Wednesday 6pm Pacific (9pm Eastern).
It’s been quite some time since we’ve had the pleasure of hearing Michal as he has been very busy investing in apartments across the country. You won’t want to miss Wednesday night… make sure you Register and then Join in early as we expect a full house and have limited space. Hope to see you there! Alexis