Back in 1967, Lyndon Johnson was our President, Sgt. Pepper’s Lonely Hearts Club Band topped the Billboard charts, a gallon of gas only cost 33 cents, and the homeownership rate was 63.3%.
In the second quarter of 2015, Barack Obama was our President, See You Again topped the Billboard charts, a gallon of gas cost $2.80 and was considered cheap, and the U.S. homeownership rate fell below 63.5% for the first time in 48 years!
Of course, a lot of things have changed since 1967, so let’s think about these trends in a more recent time frame. In the last year, there has been an increase of 1.6 million households due to immigration, Millennials moving out of their parents’ homes, and people deciding that they want to live alone instead of with roommates. Of those 1.6 million new households, 2.0 million of them are new “renter households”. That means that there are 400,000 fewer owner-occupied households than there were a year ago, even though the total number of households has increased. This isn’t a matter of selecting one point in time; the trend holds when you look back five years as well. Since Q2 2010, there are 4.6 million net new households, consisting of 5.6 million new renter households and 1.0 million fewer owner-occupied households.
There were only 927,300 housing completions in the twelve months ended June 2015, meaning many of those newly formed households took up residence in existing vacant homes. Expanding our data set, the average number of homes built from 1995-2007 was 1.6 million per year, but only 748,000 on average from 2009 through June 2015.
The dearth of new housing completions has exerted pressure on vacancy rates, home prices, and rents. Supply is not keeping up with rental demand. The national vacancy rate for rentals in Q2 2015 was 6.8% (vs. 11.1% in Q3 2009) and 1.8% for homeowners (vs. 2.9% in Q1 2008). The median asking rent for vacant units was $803 per month, up 6.2% in the last year and up 15.7% in the last five years. The S&P Case Shiller National Home Price Index increased at a 4.4% annual pace in May and the 20-City Composite gained 4.9%, more than twice as fast as wages, which grew at a 2.0% annual pace in June. Much of the new construction is for high-end homes and luxury apartments, making it even harder for low-income people to find housing.
There are a myriad of reasons that renting single-family homes has become so popular. Some of these decisions are economic (poor credit and strict mortgage underwriting, lack of capital for down-payment), some are life decisions (divorces, renting to get into specific school districts, transient workforce), and some people simply don’t care to own homes anymore. Any way you slice it, it appears that the U.S. is gravitating toward becoming a rental society, and single-family rental homes are playing a crucial role.