A rising homeownership rate could threaten the multifamily sector.
The apartment market is showing signs of slowing—very subtly—as the homeownership rate ticks up. The homeownership rate in the third quarter rose to 63.9 percent. Even a one-percentage point increase in the homeownership rate could subtract about 800,000 rental units from net absorption, says Michael Cohen, CoStar direct of advisory services, in presenting the Multifamily Market Q3 2017 Review and Outlook.
But renter demand still remained high in the third quarter, seeing an uptick as the national vacancy rate trended lower.
“The third-quarter [vacancy] numbers are a welcome sign [for owners] after the sharp increase at the end of last year,” Cohen says. “Overall, it was a strong third quarter, which was a nice surprise. We’re still in the golden age for multifamily, but we’re seeing signs of a gradual slowdown in the apartment market.”
Besides an increasing homeownership rate threat, slowing rent growth along with stagnant prices in apartment properties are also cutting into multifamily forecasts, CoStar notes.
CoStar says it’s not from apartment oversupply, either. Apartment construction remains elevated; however, economists also note that the inventory of single-family homes and for-sale housing remains near all-time lows.
“There’s more than enough renter demand to fill 50,000 new units each quarter,” Cohen says. “Outside of a few select markets such as Austin, Nashville, and Washington, D.C., the supply wave isn’t having a dramatic effect on broader U.S. fundamentals.”
But once the housing market plays catch up with more for-sale offerings, renters likely will be swayed to buy instead of rent, particularly in lower-cost markets, CoStar analysts predict.
“For those looking to play the housing cycle, entry-level condo or single-family homes represent attractive options, given some shifts by millennials we’re beginning to see and will continue to see for quite some time,” Cohen says.
Source: “U.S. Apartment Demand Bounces Back From Slow Down in Early 2017,” CoStar Group (Nov. 3, 2017)
