As Wall Street Journal outlined 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.” In the last decade since the market reset, homeownership rates have been on a steady decline, which have meant the rental market has boomed, which have allowed landlords to “raise rents far faster than the pace of inflation.” The tables seem to be turning, however, as homeownership rates increased to 63.9% in the third quarter indicative of the millennial demographic’s movement into milestones such as marriage, job security, and student loan debt payoff, among others.
So now, the question many analysts are considering is, are the good times for the rental market over?
Looking at how homeownership gains will impact the rental economy, experts say it is likely that house-for-rent companies will feel the impact first, because their tenants are more likely to buy into the single-family lifestyle and are also typically located within more affordable markets. And it’s not just homeownership that will influence rental market trends, as another force will make an impact: “a surge in supply from developers hoping to cash in on rising rents.” In cities such as Seattle, for instance, nearly 96% of in-city housing units delivered in the current decade are for rent, while many ownership opportunities are selling out quickly in presales.
Though landlords may start to feel the impact of millennials purchasing homes, the lack of inventory supply will certainly act as a ray of hope, as “new housing construction continues to lag behind the rate of household formation,” which will keep some would-be buyers renting for lack of an alternative option.