The U.S. homeownership rate slipped to 66.5 percent in the fourth quarter of 2010, its lowest level since the fourth quarter of 1998. The falling homeownership rate is weighing down the for-sale housing market while at the same time boosting the rental market. The forces pushing the rate lower are numerous, starting with the 3 million homes sold out of foreclosure in the last three years. While many of the foreclosed homes end up as rentals, others are offered for sale. Either way, the disposition can take months or years while the need for the former homeowners to find new accommodations happens right away. Moreover, renters who can afford to buy are not necessarily in a hurry to do so, observing that prices are still soft. Compounding these issues is the fact that mortgages are more expensive and harder to get (rightfully so) than they were at the peak of the bubble with larger down payments and less flexible terms. Aside from the housing crisis, demographic trends favor the rental market as the population aged 20 to 34 – prime apartment-renting years – is expected to increase by 4.3 million in the U.S. during the present decade. These forces have conspired to drive down the vacancy rate of all rental units to 9.4 percent in the fourth quarter of 2010 from a recent high of 11.1 percent in the third quarter of 2009 according to the Census Bureau. In larger (50+ units), professionally managed communities tracked by data-provider Reis, the vacancy rate fell to 6.6 percent in the fourth quarter from a recent high of 8.0 percent in the first quarter of 2010. Expect leasing market conditions to tighten further and construction activity to pick up moderately this year.
Source: Census Bureau, Grubb & Ellis