Forget about homeownership being the American Dream. We’re rapidly becoming a “Renter Nation”! The details …
* The toxic combination of higher down payment requirements, tighter lending standards, excessive student debt loads, and more is driving some first-time buyers out of the market. But others simply do not WANT to own, even if they could!
Roughly 1-in-5 “millennials” — the prime demographic group that would otherwise provide a big chunk of first-time buyer demand — now are choosing to rent because of the flexibility it provides. That’s up from 16 percent a couple years ago. Result …
* First-time buyers account for only around a fourth of U.S. home purchases now. That’s far below the typical rate of around 40 percent.
* Without first-time buyers to buoy demand, the national homeownership rate sank even further to 64.7 percent in the second quarter of this year from 65 percent a year earlier. That was the lowest reading since 1995 — 19 long years ago!
* Fannie Mae’s most recent National Housing Survey found that only 64 percent of Americans think this is a good time to buy a house. That’s tied for the lowest reading EVER.
Some 32 percent of consumers surveyed said they would rent if they had to move soon, the highest reading in more than a year. Fannie Mae cited weak income gains and the recent bounce in home prices as reasons buyers are turning negative on housing.
|Many millennials simply do not WANT to own, even if they could!|
But an even more important factor is just a change in consumer attitudes about renting versus owning, something I’ve been chronicling for a while. And it’s starting to have serious impacts on the real estate investment choices many are making.
Just take a look at a chart of Apartment Investment & Management Co (AIV), a real estate investment trust (REIT) that owns multifamily apartment complexes around the U.S. It’s up more than 27 percent in the last year, and just hit the highest level since just before the 2008 market meltdown.
Another major player, Avalonbay Communities (AVB), has tacked on more than 26 percent in the past year. It also just eclipsed its credit market/REIT bubble peak.
Now punch up a chart of D.R. Horton (DHI), one of the largest U.S. home builders. It has gained less than half as much in the past year, and is basically unchanged from September 2012. Ditto for other major builders like Toll Brothers (TOL) or Lennar (LEN).
Meanwhile, we’re seeing foreign capital increasingly buy into rental property here (as well as office, retail, and industrial real estate). It’s all part of the broader trend towards mobile, global money flows that Martin and Larry have written about lately.
One recent survey found that international investors consider the U.S. to be the most stable and secure country for real estate investment in the world. So they’re sending tens of billions of euros, pounds, yen, yuan, and more our way as a result!
Now I’m not a fan of overexposing investment dollars to real estate. So much money has poured into the sector that property yields are low. A rise in interest rates could hurt values for the asset class as a whole.
But if you ARE going to get involved, favor rental-oriented investments versus companies that need a robust home purchase market to thrive. All the Fed funny money in the world can’t overcome the lasting scars of the housing crash, or the cultural and debt-related influences that are making us a Renter Nation!
And don’t forget to weigh in at the Money and Markets website here with your thoughts. I’m interested to hear if you, your kids, or your grandkids are opting to rent rather than buy — and if so, why? Also any on-the-ground reports on the housing market from your neighborhood would be much appreciated by your fellow investors!
Until next time,
P.S. Have you had a chance to view Martin’s new Q&A video series? Click here to view now! You will also be able to catch up on the urgent video briefings that he posted last week.