Housing Market Trends: 2017 in Review, 2018 Outlook
by Editorial Staff
We predict growth in rents will soften in 2018, however, the ongoing lack of affordable rentals will spur rental demand. The following are most important real estate trends of 2017 and their impact on the 2018 housing and rental markets.
Bouncing back from over a decade of negative growth between 2004 and 2016, homeownership rates in the United States hit bottom and then began to rebound up slightly from 62.9% in 2016–the lowest rate since 1965–to a high of 63.9% in 2017–the highest since 2013.
With the supply of single family homes catching up with demand, we expect the rate of homeownership is expected to be stable through 2018. However, with more millennials and first time homeowners entering the housing market, we may see slight increases in homeownership rates through the end of 2018. Increase demand, spawned by first time homeowners, will, however, be curbed by the lack of affordable housing. The average price of a starter home is up over 10% from 2016.
Between 2004 and 2016 the number of households renting increased by nearly 20%, jumping from just under 37 million in 2004 to over 44 million by third quarter 2017. Over this same period of time, homeownership increased roughly 1%, from 74 million to 75 million. Notwithstanding, an uptick home sales and strong national economy, NAIPO predicts that the rate of growth in renter households will outpase growth in owner households through 2018.
The level of cost-burdened renters–those spending over half their income on rental housing–fell from 50.6% in 2015 to 49.7% in 2016, due in part to renter income growth outpacing rent growth. In fact, 2017 saw the highest increase in higher-income renters since 2008. The percentage of high-income renters grew by 4.2% between 2005 and 2016, while the percentage of low-income renters decreased by roughly the same amount. The largest growth in high-income renters continues to be found in larger metro areas that have strong economies and job growth.
Growth in homeownership in 2018 will be driven by high-income renters making a first time home purchase.
Supply of Multifamily Housing and Softening Rent Prices
As expected, occupancy rates for multifamily housing have fallen in markets where the most new construction of apartments, duplexes and other rental properties is occurring. In fact, we’re seeing that decreases in rental occupancy rates are almost directly proportionate to increases in supply. Some of the tightest rental markets that have experienced overall decline in occupancy rates include Dallas, Denver and Seattle. In 2017, occupancy rates in Dallas fell from 92.3% to 91% as more than 7,000 new rental units were added to the market.
Notwithstanding substantial increase in the volume of new multifamily construction, some metro areas, including Los Angeles, San Francisco, and Portland, Ore., have continued to experience rising occupancy rates and rents. These trends fall outside of the norm and are due primarily to severe housing under supply and active employment in these metro areas. During 2017, Houston, Texas experienced extraordinary growth in occupancy rate as many homeowners affected by Hurricane Harvey moved into the city to rent.
For the third quarter of 2017, overall rent growth declined nationwide, following no rent growth during the same time of year in both 2016 and 2015. Recent negative national rent growth can be attributed to a huge upswing in the number of new multifamily units on the market. Over the next year, NAIPO projects that over 100,000 new rental units will be added to the U.S. market each quarter through 2018–the highest level of new-supply growth in rental real estate since the 1980s. Over 250,000 new units are projected to be added to the nation’s top 82 markets.
Notwithstanding, this influx in new rental units is not predicted to alleviate rent and housing pressure in the affordable-rental markets. Most new-supply growth during 2018 will be for higher-end properties for mid-priced to higher-income renters.
Without exception the availability of affordable rental housing is on the decline nationwide. Between 2005 and 2016 the number of occupied rental units priced under $800 per month fell by 1.2 million. However, during the same period, the overall number of units rented increased by nearly 6 million–and number of occupied units priced under $800 per month, as a percentage of all occupied rental units, fell from 41.9% to 33.1%. The percentage of rental units priced over $2,000 per month, as a percentage of all occupied rental units, increased from 4.7% to 8.4%.
For low-income families–those earning less than 50% of the media wage in their area–finding an accommodating apartment, that they can affordable, is challenging. Between 2010 and 2017, the number of “affordable” apartments as a percentage of all available apartments nationwide, fell from 11% to 4.3%.
There is–and will continue to be–a need for more affordable housing for cost-burdened renters, defined as those households spending over 50% of their income on rent. Currently, about 25% of renters nationwide are severely cost-burned, but in many areas the number is as high 30%. In fact, only 6% of the largest U.S. metro areas have cost-burdened renter rates below 20%.
Affordable housing will continue to be elusive for many households through 2018, as most new construction is targeting higher-income renters.