Are Millennials Set to Disrupt the Country's Thriving Rental Market?

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Are Millennials Set to Disrupt the Country's Thriving Rental Market?

"Wall Street Journal explores the rising homeownership rates and the impact it could have on the rental market.

 

As Wall Street Journal proclaimed in a recent article, “homeownership has risen to its highest levels since 2014, causing analysts and investors to wonder whether the rental market’s good times are ending.” Since the market reset a decade ago, homeownership rates have declined, which has contributed to a strong rental economy that has enabled “landlords of apartments and single-family homes to raise rents far faster than the pace of inflation.” But now, homeownership rates are increasing, up to 63.9% in Q3, a strong trend as the millennial demographic begins to age and reach milestones such as marriage, job security, student loan debt payoff, and other factors that enable one to settle down.

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So now, analysts are asking, are the rental market’s good times over?

It’s anticipated that house-for-rent companies will feel the impact first, because these homes are typically in more affordable markets and the residents of single-family homes are more apt to desire to buy into that lifestyle. In addition, the increase in homeownership comes as another weakening force has hit the rental market: “a surge in supply from developers hoping to cash in on rising rents.” To be sure, in cities such as Seattle, nearly 96% of the in-city housing opportunities to be delivered in the current decade are for rent, and those to be offered for sale are effectively sold out with the success of new development projects such as NEXUS.

The lack of supply acts as a ray of hope for rental property investors, as “new housing construction continues to lag behind the rate of household formation,” which means many would-be buyers will continue to rent for lack of a better option.