Employment, Supply and Occupancy Trends; Forecast Rent Growth

■ The U.S. homeownership rate increased to 64.8% in the fourth quarter, a 60-basis-point increase over the previous year.

■ The age group with the largest growth in homeownership is 35-to-44-year-olds, giving rise to the question of whether older Millennials are ready to settle down like their parents.

■ The preferences of the 80 million-strong Millennial generation has ramifications for the multifamily industry, especially since development is focused on urban and infill locations.

The decline in single-family ownership after the financial crisis contributed to demand for multifamily housing during the past decade. The homeownership rate peaked in the fourth quarter of 2004 at 69.2% and bottomed at 62.9% in the second quarter of 2016. In a nation with 126 million households, a 4 percentage-point drop in homeownership equals millions of additional renters. (Although the relationship between owning and renting is not 1-to-1, since there are other options, like shared household arrangements and living with relatives.)

So it is notable that the homeownership rate has climbed over the past year to 64.8% in the fourth quarter of 2018, from 64.2% a year earlier. All age groups saw an increase year-over-year except for 65-plus, which declined 40 basis points to 78.8%.

The most significant change came from 35-to-44- year-olds, whose homeownership rose 220 basis points year-over-year to 61.1% in 4Q18. What’s interesting about this is that it could portend social change heralded by some analysts, who have forecast that Millennials were merely delaying— not shelving—marriage and family. In this scenario, older Millennials will increasingly settle down in the suburbs, have children and seek to re-create the picket-fence lifestyle of their parents. If that’s correct, there could be a weakening of demand for urban apartments, since these households will give up the more amenity-rich cities and inner-ring suburbs in favor of better schools and more privacy.

Could this be the start of a longer-term trend? Possibly. The data would have to change more significantly and for a longer period of time before we can make any pronouncements with certainty. As it stands, homeownership is still far below peak levels. For 35-to-44-year-olds, the homeownership rate peaked at 70.1% in the first quarter of 2005. And before the last recession, we would have to go back to 1995 before the overall homeownership rate was less than 65%.

As it stands now, much apartment development is concentrated in urban locations and near mass transit. The low-rise suburban developments of the 1970s and 1980s remain relatively rare. If the recent homeownership trend continues, that would mean new supply is geared toward areas where demand might weaken going forward.

To be sure, none of this is certain. For young families, homeownership is constrained by high college debts and tight credit standards. And how much of the 80 million Millennial generation want to own homes, and precisely where, remains an open question. At the same time, the 65-plus group shows an increasing openness to rent. But it will be important to stay abreast of the trends.

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