Economy Watch: Apartment Market Fundamentals Beginning to Shift

The U.S. homeownership rate appears to have stopped falling after more than a decade of declines, according to a recent Apartment List Rentonomics report, which is likely to have implications for multifamily rental properties.
Source: Apartment List; U.S. Census Bureau
Source: Apartment List; U.S. Census Bureau

After more than a decade of declines, the U.S. homeownership rate appears to have stopped falling, at least for now, Apartment List Rentonomics recently reported. Should the rate stand pat, or even start to rise, that will have implications for multifamily rental properties.

After years of decreases from the 2004 high of 69.2 percent, the homeownership rate appeared to have bottomed out in the second quarter of 2016, when the rate hit 62.9 percent. That was the lowest homeownership rate since 1965, but was still significantly higher than at the first half of the 20th century—especially before the invention of the 30-year mortgage—when the rate was well under 50 percent.

Supply-demand shifts

Also, the report said, the large number of new multifamily units completed in 2017 is beginning to soften occupancy and rent growth—a trend expected to continue into 2018. In the markets with the most new multifamily construction, occupancy rates have dropped, while at the national level, occupancy has remained steady.

In Dallas, for example, there will be an estimated 22,851 new unit deliveries in 2017, up from 15,459 in 2016. With the large increase in the rental stock, overall occupancy rates have fallen from 92.3 percent in October 2016 to 91 percent in October 2017, Apartment List Rentonomics said.

But that isn’t the case in every market. Metros like Los Angeles, San Francisco and Portland saw occupancy rates rise despite the high volume of multifamily construction, because they face a severe undersupply of housing. From 2010 to 2015, Los Angeles, San Francisco and Portland added 4.7, 6.8 and 2.7 new jobs per building permit, respectively, leading to significant pent-up demand for rentals.