Renters Account for Growth in Household Formation

September 16, 2014

Construction on buildings with at least five apartments reached the highest monthly pace since the beginning of 2006, Freddie Mac reports in its Economic and Housing Market Outlook for September. But one big difference compared to 2006, Freddie economists note, is that there is less development of condominium complexes, and most of the multifamily offerings are rentals.

"Over the past four quarters, all the growth in net household formations has been among renters," Freddie Mac's report notes. "The decline in home ownership rates has been primarily concentrated among younger households." Over the past decade, the home ownership rate among those 35 years old and younger has fallen from 43.6 percent to 35.9 percent.

The rising number of tenant households has prompted vacancy rates to drop to the lowest level since 2000.

"The apartment market has been vibrant, reflecting the desire of many Millennials to live in an urban setting and retain locational flexibility," says Frank Nothaft, Freddie Mac's chief economist. "Unfortunately, if they're looking to live in the larger cities, that's where rents are rising the fastest, especially in the West or Northeast regions of the United States — places like Los Angeles and New York City. In the South region, areas like Miami and the Washington-Baltimore metro have seen real rents exceed the U.S. average. But in the Midwest, only the Chicago metro area has outstripped the U.S. average."

Source: Freddie Mac