Renters by Choice: The Homeownership Alternative
By Amalia Otet, Contributing Writer
The nation’s homeownership rate is the lowest in 50 years, estimated at 62.1 percent, as reported by the Examiner. With 3.8 million homeowners 90 days or more delinquent on their mortgage payments and a wavering single-family housing market, long-term renting appears a much more viable solution to deal with the economic uncertainties that affected the residential real estate during the recession.
The overall U.S. apartment sector gained considerable momentum in the first two quarters of 2012, spurred by an increased demand of urban living and a shortage of new residential development. The improved multifamily market conditions allowed landlords to raise rents and continue on a path of steady recovery, though at a slower pace than earlier this year.
The third quarter wrapped with an annual effective rent growth rate of 3.64 percent in September, while the occupancy rate climbed to 94.55 percent, according to Axiometrics Inc, a national provider of apartment data and apartment market research. The peak for annual growth in 2012 was 4.14 percent in April, during prime leasing season.
Multifamily market demand is expected to remain strong during the next couple of years due to favorable demographics among prime renters and a decreasing national homeownership rate, with 1.7 million new renter households to hit the market between now and 2015, as reported by MHN (citing a Freddie Mac forecast report). Since 2008, 4.8 million new renter households have been added in the U.S.
While investors are breathing a sigh of relief as the real estate market shows signs of major improvement, the higher rents and low vacancy have made some renters’ searches for affordable apartments more challenging. To land your dream apartment in a competitive market, plenty of cash at hand, a solid credit history, and a clean background check are more vital than ever.
As foreclosures continued to push more people out of their homes, renting became a viable solution to escape the housing crisis. But not everybody was forced into the rental market. There are people who choose renting just because they love it, they can relate to the “no-strings-attached” philosophy and enjoy the freedom that it entails. These freedom of choice renters will be the backbone of multifamily in the years to come, even if rent increases are expected to taper off beginning in 2013.
A lifelong renter, John Brugliera is one of the many Americans who have never taken the plunge into home ownership and today he considers himself lucky that he’s never owned a home. He was never attracted to the idea and has no plans to buy in the future, despite the record-low mortgage rates and falling home prices. Maybe because home ownership comes attached with a lot of responsibility, which at times can become overwhelming.
“I have no real desire to own a house. I’m also single, no kids, so don’t need a ton of room,” John explains. “What I like most about renting is the fact that there’s no yard work (which I abhor). No worries about the roof or heating system or plowing the driveway after a snowstorm. Did I mention no yard work?”
When hunting for a good apartment you need to set your priorities straight. Think of why you want to move, do you need to be close to your job or entertainment options, in close proximity to a park where you can walk your dog or just looking for an affordable accommodation that does not eat up your entire paycheck every month? For John, location was a decisive factor. “I moved into my current apartment in February, 2000. I needed to be closer to work, as I had lost my license. I was living in another apartment for 5 years, but it was 20 minutes away by car.”
Demographic trends indicate that the preference for apartment renting crosses over multiple generations, from Baby Boomers looking to downsize to Generation Z, the youngest renters in the marketplace. But both groups share the desire for lifestyle convenience when selecting an apartment, including easy access to transportation and safe, walkable neighborhoods.
If the anticipated multifamily slowdown proceeds as expected next year, expect to see communities increasingly prioritizing resident retention techniques. Valuing those life-long renters and earning their long-term commitment to your property will be more important than ever before.
How does your multifamily firm plan to hang on to long-term renters? What local market trends are you seeing when it comes to choosing an apartment-based lifestyle over owning a home?
This was originally published on The Balance Sheet.