Apartments

Affluent Apartment Renters Slow to Buy a Home

April 16, 2015

On an almost-daily basis, we hear the question: When will the millennial / first-time buyer emerge? While predicting the behavior of a cohort still recovering from high levels of unemployment and a record amount of student loan debt can be tricky, the response of some of the largest apartment REIT operators is an unhesitating no time soon.

When your apartment lease expires, you have two choices: to renew or move out. Each quarter we track the percentage of residents who move out of an apartment to purchase a home. (Other reasons for moving out can include a job change, eviction, or rent rising too high). By studying publicly traded apartment REITs who manage a combined 520,000 units, we have learned the following:

  • During the housing boom of the early to mid-2000s, roughly 1 in 5 renters leaving their apartment opted to purchase a home. In fact, the national homeownership rate peaked in 2004—at the same time that the percentage of those moving out to purchase a home was peaking.
 
  • Since 2008, the percentage of renters moving out to purchase a home has remained below its historical average of 17%, while the homeownership rate has continued to decline.
 
  • As of the fourth quarter of 2014, just 14.7% of all tenants moving out purchased a home. The homeownership rate declined to 64%, the lowest since the mid-90s.
 
Sources: Apartment REIT public filings; U.S. Census Bureau; John Burns Real Estate Consulting, LLC

The public apartment REITs we track primarily operate communities that target more financially stable millennial tenants (i.e., the most qualified to purchase a home). During the fourth quarter of 2014, the weighted average rental rate of these REITS was $1,652, roughly 31% higher than the national average asking rent. One would think that enduring years of sizeable annual rent increases would push tenants toward owning a home. However, even with an improving economy and a more stable employment outlook, this trend has simply not occurred. While newly revised FHA loan requirements have the potential to pull more first-time buyers out of apartments, the data does not indicate a significant uptick in FHA buyers.

We study the apartment space to determine what trends will impact the for-sale housing market. We offer a dedicated research report covering the apartment industry that guides developers, lenders, landlords, and investors as they navigate the market.

 

Building Market Intelligence™

Every week, we deliver analysis to over 40,000 subscribers with our Building Market Intelligence™ newsletter. Subscribe to our weekly BMI newsletters to stay current on pressing topics in the housing industry.

About The Author

Contact Us

If you have any questions about our services or if you would like to speak to one of our experts about we can help your business, please contact Client Relations at clientservices@jbrec.com.

Products and Services Mentioned

Research Membership

Our research services enable our clients to gauge housing market conditions and better align their business and strategic investments in the housing industry. We provide a thoughtful and unique holistic approach of both quantitative and qualitative analysis to help clients make informed housing investment decisions.

Burns Apartment Analysis and Forecast

A wide-ranging quarterly report that includes an economic outlook for the multifamily market, and analysis of the interplay between housing and apartment market dynamics and demographics.

Real Estate Consulting

Our experienced team of consultants helps clients make sound housing investment decisions. We thrive on their success and work with many clients over multiple years and numerous projects.

Latest Insights

Earth, Wind, and Fire: NileBuilt Homes Defy the Elements
Design Disruption: Architects’ Floor Plan Forecasts
Keep, Stop, Start: Homebuilding’s Health Kick