The rental market's rebound continued in the third quarter this year and some housing market experts say some of it is due to younger consumers deferring the American Dream.
The National Multihousing Council (NMHC) said the third quarter rental market was "firing on all cylinders" with improvements across the board in supply-demand fundamentals, occupancy rates and higher rents, as apartment owners also found it easier to acquire debt and equity.
"While the slowdown in the condo market has had some impact on the investment demand for apartment properties, in every other respect the apartment industry seems to be firing on all cylinders," said Mark Obrinsky, NMHC's chief economist in a prepared statement.
A look at four measures shows all indexes but one with a reading above 50, indicating conditions are improving.
The Market Tightness Index at 70 for the third quarter represents the 13th consecutive quarter in which the index was above 50 or that apartment demand has been improving for the period as reflected by lower vacancy rates, higher rents, or both.
The Debt Financing Index rose sharply from 29 in the last quarter to 63 in the third quarter, representing improved borrowing conditions.
The Equity Financing Index was up to 58 from 50 last quarter. The best figure in more than a year means better equity financing availability. The Sales Volume Index at only 38, was up from 32, indicating slow property sales activity, partly due to the decline in condo conversions.
The NMHC says as long as employment growth remains robust and home prices remain out of reach for many, the landlord's market should remain in full swing, perhaps into 2008, when the owner-occupied housing market should reveal broad improvements.
During it's recent annual fall meeting in Denver, the Urban Land Institute hosted experts who said the recent housing downturn has made younger would-be buyers reluctant to take the plunge in receding waters.
Belmont, MA-based Reach Advisors' consumer survey in July 2005, revealed only 27 percent of those surveyed said their plans to move were being affected by market conditions. The most recent survey, taken between October 6 and 13, found that 41 percent were rethinking buying plans. Those most reluctant to buy were those who don't already own a home.
"Now, we are at a time when the cost of renting is more competitive (with the cost of buying a home)," ULI quotes J. Ronald Terwilliger, chairman and chief executive officer of Trammell Crow Residential in Atlanta, GA.
"Over the past year, the psychology of the market has changed. People no longer feel that they need to get into home ownership now or they will get passed by," he added.
ULI panelists cited originally-enticing, but now budget-busting rates in upward adjusting nontraditional mortgages, affordability issues after a run up in home prices and oversupply of housing as factors leading buyers to defer home purchases.
Terwilliger said it was irresponsible to put people into homes they couldn't afford.
"Many markets have become a victim of their own success," ULI quoted Michael B. Cohen. Now, "buyers don't want to be the last ones in, and sellers are holding out for prices they could have gotten a year ago."
He told ULI that home prices -- particularly in what were the hottest markets -- in the Northeast, Florida and on the West Coast -- will need to fall more to bring buyers back in force, he said.
Most panelists said the market will continue to correct itself through 2007, with the condo sector taking the brunt of the downturn. Momentum should begin to build in 2008, turning the market around.
Meanwhile, many home owners who recently purchased and now need to sell or those who have taken out home equity loans are finding homes worth less than their mortgage balance. The news is making potential buyers balk.
Terwilliger conceded, however, given the slower rates of appreciation, home ownership is still a wise choice now for those who plan on staying put.
