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CRE Finance World, Summer 2013

A publication of Summer issue 2013 sponsored by CRE Finance World Summer 2013 53 Another support to rental demand is the fact that many homeowners have lost their homes over the past several years, which makes it difficult for them to return to homeownership: Lenders typically will not approve a mortgage if a borrower has been through foreclosure within the last seven years, although the Federal Housing Administration guarantees loans for borrowers three years after foreclosure. Moody’s Analytics estimates more than 5 million homes were lost to a foreclosure sale from 2006 to 2012. Some of these households may have doubled up with friends or family, but many others have turned into renters. It is important to note that many of these households are already accustomed to living in single-family homes and will thus be more likely to rent single-family homes. In some communities, almost one-fifth of new renters were once homeowners. This trend is reflected in the rise of the number of single-family rentals. According to the American Community Survey, the number of occupied single-family rental units increased by 22% from 2006 to 2011 (the most recent available data) compared with an increase of 7% for renter-occupied multifamily units (see Chart 4). Chart 4 SF Renter Households Grow Quickly Sources: Census Bureau, Moody’s Analytics Another driver of homeownership is household perceptions. Owning a home has long been the American dream, but the Great Recession may have permanently depressed this desire. In particular, many young adults who will be entering the high-homeownership age cohorts over the next 15 years spent many of their early adult years watching the housing market unravel and may think twice before buying a home. However, few studies of consumer behavior definitively show a permanent shift in consumer perceptions of homeownership. Rather, traditional determinants such as gender, age, ethnicity, income and current tenure have the most impact on tenure preferences. It is, however, difficult to measure consumer preferences, and it is likely that, at least temporarily, views on homeownership have soured, to the benefit of rental markets. Demographic factors also influence the decision to rent or buy. Over the past several years, these forces have augmented the support for renting that the recession and slow expansion have provided. Tenure choice is influenced by lifestyle considerations that are shaped by household characteristics such as household size, the presence of children, and anticipated length of stay. Many of these factors are in turn closely related to age. For example, younger households are more likely to be single and childless and thus less apt to buy a home. Households headed by younger people are also more likely to be renters because they lack the financial resources to purchase a house. There are a number of other harder to quantify reasons for renting that are likely more important for younger households. Renting offers greater flexibility and fewer responsibilities than owning a home. Younger households are also more likely to value mobility, which makes renting more attractive. These conditions reverse as households age into the next cohort, and the renter rate rises until the 75 and older group. Even for this group, which may find it difficult to live independently, the renter rate is well below average. Thus, a key driver in the long run for renting is the age distribution of the population (see Chart 5). The renter rate for households headed by a 25- to 29-year-old is more than 65% in 2011, according to the Housing Vacancy Survey, while the renter rate for households headed by someone younger than 24 years old is 77%. By contrast, the overall rental rate is 34%. Chart 5 Younger Households Likely to Rent Sources: Census Bureau, Moody’s Analytics Multifamily Housing: On a Path of Solid Growth


CRE Finance World, Summer 2013
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