09/03/2010 | By Jason C. Flynn
When the housing market crashed in 2008 and the U.S. economy slipped into a recession, some industry experts say it brought to light trends that were already shifting the demands for both buying a home and renting in a multifamily setting.
In July of this year, the National Association of Realtors (NAR) reported that sales of homes in the United States reached a 15-year low, falling twice as fast had been predicted by a Reuters poll of real estate analysts from earlier this year. According to NAR, sales of U.S. homes dropped to an adjusted annual rate of 3.83 million, down roughly 25 percent from the 5.14 million homes sold in July 2009. Even with interest rate cuts, sales have continued to shrink.
Meanwhile, according to CB Richard Ellis Group, Inc. (CBRE), after rising to a record high of 7.4 percent in 2009, the U.S. vacancy rate for apartments will fall to 6.8 percent by the end of 2010.
Douglas Bibby, president of the National Multi Housing Council, says he believes that Americans' views on owning versus renting are shifting. But he doesn't expect wholesale change overnight.
"We're still a nation where two-thirds of our families are home owners, so we're not talking about the demise of home ownership," Bibby said. "We are talking about a need to rebalance priorities. We're going to need a lot of rental housing going forward."
For Bibby, three major factors are contributing to this growing need for rental housing:
· baby boomers moving into rental housing as they retire;
· echo boomers born between 1983 and 2001 moving into colleges and the job market in unforeseen numbers; and
· the massive increase in legal immigration.
In particular, Bibby says the makeup of households will have huge impact on who is renting and who is buying.
"Household formation is changing. Twenty-two percent of households are married couples with children, and that population is going to drop going forward," Bibby says.
While some are focusing on the social changes affecting the market, others believe that the growth in renters has a more practical source.
Chris Henderson, senior analyst of real estate research for SNL Financial, attributes the rise to a lack of credit and confidence on the part of both lenders and borrowers. Henderson cites the "heavy pressure" from lenders, such as requiring a large down payment, as a major reason why people aren't looking at buying a new home. He says that given the high investment demand and the uncertainty of the job market and the general economy, potential buyers just aren't there right now.
"Consumers are still hesitant to put their time, effort and money into something that won't be able to turn around in the near future," Henderson said.
Both those looking to flip houses and people looking for long-term investments have become wary of current market conditions, Henderson explains. Therefore, the market for multifamily rental units will surge in the short term until the market rebounds.
According Richard J. Campo, chairman and CEO of Camden Property Trust (NYSE: CPT), the change in the mindset of home buyers will be a key factor in how quickly home sales will recover in the long term.
"The expectation and the psychology at the peak of the market was that you were stupid if you rented," Campo says. "If you didn't get in on the bandwagon, you were an idiot. Today, the psychology has totally shifted."
The push to help more people become home owners that began during the Clinton Administration and was expanded under President George W. Bush took "perfectly good renters and turned them into horrible homeowners."
Even with government subsidies to encourage home ownership, Campo doesn't expect the same type of explosion in the market. He predicts the market for homebuyers will return to what he considered "normal levels:" approximately 64 percent of the U.S. population. With states like Nevada, Arizona, Florida and Michigan all having a level of "underwater" mortgages greater than 38 percent, Campo says it will take a long time before consumers come back to the idea that home buying is a solid investment.