Yet another sign of the shifting landscape of the housing market over
the past few years, an additional 1.5 million households moved into
rental housing over the year ending March 2012, according to a new
That's a 4 percent increase in a single year, said the June 2012 Economic Outlook
published by government mortgage giant Freddie Mac, and the highest
year-over-year percentage increase in recent history, according to
Christina Aragon, director of strategy and branding at Rent.com.
"A 4 percent increase in households moving into rental housing is
significant," Aragon wrote in an E-mail, noting that the previous few
years have seen jumps in the renter population, but not quite as
While the increase might be significant, Aragon isn't all that
surprised, especially given that the number of U.S. households grew by
nearly 1 percent last year, the steepest increase since 2007.
Meanwhile, the homeownership rate—currently around 65 percent—has sunk
to its lowest level in 15 years.
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The substantial increase in renter households partly stems
from the lingering effects of the housing and foreclosure crises, which
converted many former homeowners into renters. The continued tightness
of mortgage credit and higher down payment
requirements have also played a role in keeping more Americans renting, experts say.
"The homeownership rate isn't going to turn around any time soon," says Jed Kolko, chief economist
at real estate website Trulia. "There are still so many barriers. Most
renters are still two or more years away from homeownership."
Mirroring that trend, vacancy rates have plummeted to their lowest
level since early 2002, causing some rental markets to tighten and
rents to rise. According to a recent survey by Trulia, rents were 6
percent higher in May than they were a year ago. Some metro areas have
seen even steeper surges—renters in San Francisco have had to stomach
rent increases of around 14 percent, while those in Miami, Oakland, and
Denver saw increases of more than 10 percent.
"Further increases in rental demand are likely in the coming year as
newly formed households postpone homeownership until the economy
strengthens and they have accumulated sufficient savings," the Freddie
Mac report said. "Overall apartment market trends may show further
vacancy declines and rent gains, with property values improving as
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That trend troubles some experts who fear a bubble in the rental
market could be forming. Rental income for investors is growing at an
incredible speed, which has attracted even more interested parties
looking to capitalize on the shifting dynamics of the housing market.
That's spurred a great deal of new construction, with builders
scrambling to satisfy the still growing demand for rental properties.
"Any time you have a bubble that bursts, investors will seek another
bubble," says Anthony Sanders, professor of finance at the George
Mason University School of Management. "They seek whatever is the
hottest thing in town, which by definition then becomes a bubble."
The government has also had a hand in setting the stage for a
potential bubble in the rental market, according to Sanders.
giants Fannie Mae and Freddie Mac are among the largest lenders in
apartment building, Sanders says, and with interest rates so "insanely
low" the combination of those elements has helped stoke the fires
heating up the rental market.
"The same folks that contributed to the housing bubble, that same
mindset that gave us the housing bubble is now giving us a rental
bubble," he adds. "All we want to do is cool rents down a bit, but the
government doesn't know when to take its foot off the pedal."
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That being said, the government's efforts to convert the
foreclosures on its books to rental properties could be one thing that
helps keep the lid on a rental bubble, Sanders concedes. Increasing the
supply of rental properties would hypothetically ease the upward
pressure on rents and help cool down the rental market. "But they can't
match it up perfectly," he says. "They can't wrap up apartments fast
enough, whether it's through REO-to-rent or just construction to fit
that demand. That's why rents are going up."
But once credit standards ease and more consumers can get mortgages
on more favorable terms, Sanders says there could be an outflow from
renting and a potential rush back into housing.
"We might end up building a lot of product now for what they
perceive as current demand or demand for the next couple of years, but
if something goes the other way and we relax lending standards, we
could have a lot of vacancies again," Sanders says.
Michael Thomson is a full time Realtor with the Keller
Williams Sunset Strip Office. He has lived in Los Angeles for over 20
years and specializes in the Hollywood Hills, Beverly Hills, West Hollywood,
Hancock Park and Beverly Center-Miracle Mile areas. Feel free to call for
questions at 310-927-8422 or visit the website at CityHomesLA .