Pent Up Demand Not for Buying, Definitely for Rentals

Take a look at any recent or even past marketing or market-related reporting coming from NAR, the National Association of Realtors, and you’ll find that it’s always a good time to buy a home. Right now with dismal sales, a lousy economy, and almost no first time home buyers anywhere to be found, just where is the “pent up buying demand” that the industry wants so much to promote? By promising that demand is about to spike, it makes some people feel safer in buying and expecting prices to appreciate.
Unfortunately, almost no data exists to support this theory. People aren’t buying or selling homes for a number of fundamental reasons:
• They’re insecure in their jobs.
• They’re experiencing wage increases below the inflation rate.
• College graduates aren’t finding the jobs they thought would be waiting for them.
• When graduates do find jobs in their chosen fields, wages are generally lower than they expected.
• Student debt is a monster that’s growing larger every day, making homes unaffordable for many.
• Millions of younger Americans who would have been first time home buyers in generations past are living with their parents or sharing rent housing.
In stark contrast to these negatives on the purchase front, there is plenty of positive data to support a continued demand for rental properties, both single and multi-family. Builders and investors certainly understand this trend, as multi-family housing starts are running up dramatically. Multi-family housing starts are nearing a ten-year high.
Home sales are languishing at around a third of previous normal levels. Though home purchases have bounced off the bottom, they’re far from robust. Household formation is still near a generational low, and until household formation increases, we’re unlikely to see any real improvement in the housing market for new home sales or resales.
This doesn’t mean that the average American has given up on their desire for a nice home. It just means that they can’t afford to buy it. They’ll use their beer budget to rent a champagne home if they can. Rents are up almost everywhere, and demand just keeps rising. When the Millennials decide to move out of their parents’ homes, the movement will be to rentals in far greater numbers than home purchases.
Rental property investing seems to be secure as an asset class for some time to come.