Low Prices Not Selling Homes

Despite unprecedented affordability in the U.S. housing market, the rental market is the area showing the most growth, according to a recent Census Bureau report. The percentage of …

Despite unprecedented affordability in the U.S. housing market, the rental market is the area showing the most growth, according to a recent Census Bureau report. The percentage of renters has climbed to a 15-year high of 35% of American households, while homeownership has dropped to its lowest point in 15 years. Young and old alike are being priced out of the market due to tighter credit restrictions and a struggling economy that makes it difficult to save a first payment, but it hasn’t slowed investors from swooping in to buy distressed properties at bargain prices and convert them to rentals to turn a tidy profit. For more on this continue reading the following article from TheStreet.

More Americans are renting homes, and fewer are owning them; it’s not as if this is news to anyone who follows the U.S. housing market, but a new report from the Census Bureau Tuesday really put an historical exclamation point on the trend.

The share of U.S. household renting reached a 15 year high, and home ownership reached a 15-year low. Funny how those numbers travel together.

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About 35% of households were renters in the first quarter of this year, and that number is climbing, as lack of credit or sufficient down payment keeps Americans young and old from becoming home owners. Rental vacancies are therefore falling, the lowest rate out West, where foreclosures have run the highest during this housing crash. That is also where investors are rushing in to buy foreclosed properties and put them up for rent. Single family homes for rent, in fact, surpassed multi-family units, taking 52% of the $3 trillion rental market, according to CoreLogic.

Both rental and homeowner vacancies are down, which is a general positive for the housing market, because empty houses are a blight on communities. "The vacancy rates will only decline if household formation is increasing or units are being destroyed," notes ISI Group’s Stephen East.

While banks have bulldozed some foreclosed properties here and there, the practice is by no means popular or widespread. That should mean that household formation is increasing, which is generally a product of an improving jobs picture. Younger Americans who have been living together or with their parents may finally be getting into their own homes, more likely into rentals, but at least they’re forming their own households. That is thanks to a small drop in the unemployment rate among 25-34 year olds to its lowest rate in three years. The home ownership rate now stands at 65.4%, down a full percentage point from a year ago, and down from just over 69% at the peak in 2004.

Since the recession began, growth in overall new households has been about 50% short of trend lines, according to analysts at Goldman Sachs(GS ). While household formation is rebounding for single or un-related Americans, formation among families is still waning; that may be due to the types of homes they need, i.e. larger, single-family homes. It thus stands to reason that pent-up demand will show itself first in single family rentals in the future and less in multi-family. No wonder investors are flooding the foreclosure market.

This article was republished with permission from TheStreet.


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