Renting Remains the Only Housing Option for Many Americans
Fundamentals remain positive for multifamily, but a supply increase in recent years has put pressure on rents and occupancies.
2017 saw a 30-year high delivery of 360,000 units across the top 150 US markets. The record-high delivery however, does not tell the whole story. Half of the new units delivered in 2017 were concentrated in just 15 metro areas. Positive fundamentals for multifamily still exist to varying degrees across markets.
As of April 2018, the home ownership rate reached 64.2% after steadily increasing since its 50-year low of 62.9% in the second quarter of 2016. It remains below the pre-Recession peak of 69.2%.
Demand for multifamily continues, however, because the barriers to home ownership remain high and keep homeownership out of reach for many Americans. Wages have not kept up with home prices, which have increased nearly 50% on average since Great Recession lows, or 6.7% annually. At the same time, average wages have only increased 15% for the same period, or 2.4% annually.
Stricter lending requirements since the Great Recession make it harder to qualify for a loan. Federal Housing Administration (FHA) loans, more accessible to many Americans, declined in 2017 to 20% from a peak of 37.6% in 2009. FHA loans reduce down payment requirements for qualified buyers to as low as 3.5% versus 20% for traditional loans.
Student debt levels continue to rise. Second only to mortgage debt, student loan debt has increased 170% from 2006 to $1.3 trillion at the end of 2016, driven by higher borrowing and slower repayment. The average student with loans is carrying approximately $34,000 in loans, up nearly 70% from ten years ago. And while college attendance is associated with higher homeownership rates, student debt has the opposite effect and is associated with lower homeownership rates.
New tax policy has reduced some homeownership benefits. Decreased allowed deductions for property, state, and local tax as well as the scaled-back mortgage interest deduction have taken some of the sheen off of home ownership.