Rental Market Cools While Homeownership Is On The Rise
Over the last several years, landlords have been able to reap the benefits of declining ownership rates by raising rental rates faster than the rate of inflation. Despite rising rent, demand has continued because the majority of people could no longer afford a home.
This trend could be shifting with the Census Bureau reporting that homeownership rose to 63.9% in the third quarter, which is the highest level since 2014, the Wall Street Journal reports.
A number of factors could be contributing to this shift, including a surge in multifamily supply over the last few years, which led to a weaker rental market as prices leveled off amid competition. A larger portion of older millennials have also begun getting married and buying homes, driving landlords and developers to offer incentives such as one or two months free rent in an effort to compete.
But multifamily investors remain optimistic that this shift will be short-lived because the rate of household formation continues to outpace new housing construction by about 3.5 million units. Home prices also increased by 5.9% year-over-year in July, meaning ownership is still out of reach for many people, the WSJ reports.
Circumstances could also quickly change if interest rates rise or because of the tax code proposed last week, which retained the like-kind exchange and carried interest tax break but eliminated private activity bonds that encouraged the development of low-income housing.