Tim Smith of the blog Echo Boomers says that the federal government could offer various incentives to spur homeownership and mortgage rates could drop to 1 percent, but such moves would not stop a shift in the housing market among the Millennial generation, or Echo Boomers. He points out that the assets of 90 percent of Echo Boomers are less than $1,500, which is not enough for a down payment. He adds that the U.S. Federal Reserve, politicians, and banks fail to understand that the Millennial generation does not prepare, does not save, and places a higher value on fun.

Smith’s research on Echo Boomers has revealed that fewer than 33 percent want to own a house in the future, as most value freedom over homeownership. He says that after spending years paying off student loans to obtain graduate degrees, most are not keen on taking on a mortgage. Moreover, they would rather live in social areas than incur the costs of commuting from the suburbs.

Smith adds that Echo Boomers are skeptical about homeownership and notes that homeownership was not the American Dream for many of the older adults with whom he has spoken. Furthermore, Smith says that homeownership often never pays for itself, as owners never recoup the money spent on insurance and maintenance, among other costs.
From “Attitudes of Young Americans Bode Ill for Housing Recovery” http://onforb.es/u6UL4C
Forbes (12/17/11) Smith, Tim

A study by the Federal Reserve of Boston’s Center for Behavioral Economics, released in October, says that the number of young people who believe owning a house is better than renting has dropped over the last three years as the economy stalled. In recent years, experts say that renting has gained respectability among young professionals, with “The Great Reset” author and futurist Richard Florida noting, “Multifamily is the only game in town.”

Cultural changes are driving the shift toward renting, with people marrying later and placing more value on travel, clothes, and other items, according to Dallas developer Lucy Crow Billingsly, daughter of real estate tycoon Trammel Crow. Billingsly’s Austin Ranch community in North Dallas has a 95 percent occupancy rate, prompting a 15 percent jump in new rents this year.

Tighter mortgage standards and rising foreclosures also are pushing people to rent. Young professionals do not want to be unable to sell a house and therefore unable to take advantage of a new job opportunity. Keri Walsh, a 28-year-old teacher who has rented a one-bedroom unit in Austin Ranch for the last four years, says, “There’s no stigma to renting anymore and there’s just so much to keep you interested and busy here.”

From “Real Estate Trends: Renting Gets Glamorous” http://bit.ly/seJKZA

Daily Beast (12/16/11) Hass, Nancy

Millenials (18 to 34-year-olds) appear to be more interested in renting than their parents were, as a recent survey indicates that this group is more interested in sharing. A recent Zipcar survey also asked respondents about their willingness to participate in other sharing programs. Some have called this a “collaborative consumptive economy” in which children who grew up in an ownership society now would rather rent a lot of things instead.

The demographic and generational shifts to urbanism indicate that people are more interested in sharing than in personal ownership, particularly with a move away from homeownership. Some observers believe that this could make apartment living more desirable and put an end to the stigma associated with renting. Other trends include a move to more public parks rather than private yards, the use of rented bikes rather than cars, and the development of mixed-use street fronts rather than cul-de­ sacs. Many applaud this change as eco-friendly.

From “The Rise of the Sharing Economy” http://bit.ly/skgoEm

The Atlantic (12/11) Badger, Emily

At a mid-November Bloomberg Commercial Real Estate Summit in New York, Susan Watcher of the University of Pennsylvania Wharton School said that the “apartment’s moment” has arrived as credit constraints continue to hamper U.S. housing market growth. A recent Morgan Stanley report said that the current housing market fundamentals have created a “rentership society” in the United States.

“With the homeownership rate already in decline, we think it’s safe to say that the ownership society is suffering. Over the past two years, the . . . U.S.rental housing market has begun a solid recovery. Indeed, rental vacancy rates have fallen faster than they ever have, and rents are rising across the country,” noted the report.

The National Multi-Housing Council (NMHC) quarterly survey of apartment market conditions indicated that nearly 67 percent of respondents saw an uptick in planning or actual new construction on multifamily properties. NMHC Chief Economist Mark Obrinsky says, “Powerful demographic trends along with changing attitudes about homeownership and tighter mortgage underwriting continue to drive a shift toward renting, which is fueling a ramp-up in new construction.”

NMHC has said that changes in demographics further highlight the need for changes to federal housing policy, with NMHC President Doug Bibby noting, “Families with children made up more than half the households decades ago. But they made up only one-third of households in 2000,and by 2025, they will be closer to one-fifth. In their place are growing numbers of households who are more likely to choose renting — single parents, couples without children and empty nesters. By 2025, singles and unrelated individuals living together will comprise 40 percent of households.”

From “Rental Projects Grow” http://bit.ly/x6QcuJ

Amarillo Globe-News (11/26/11) Welch, Koren Smith

Flexibility, mobility, and adaptability are the most important values in today’s society, which is one of the reasons that homeownership is on the decline, according to economists. This is increasingly important in an economy that places renewed emphasis on the ability to relocate for professional opportunities. In this thought provoking essay, this self-declared nomadic author discusses why even though she knows renting might be the right decision for her family, she still wants to own. Among the items she notes are being able to customize her living space and being able to have a pet.

Two leading academics have floated the idea that we need some kind of hybrid rental/homeownership model, some system that decouples “renter” status from income class, while allowing professionals who would have been homeowners 20 years ago to live in a comparable setting without the millstone. The essay raises the question of whether there are ways the apartment industry can adapt itself to appeal to would-be long-term renters who don’t want to necessarily own a house but are looking for more control of their housing than the current model allows.

From “The Anxiety of the Forever Renter” http://bit.ly/slwFg4

The Atlantic (11/14/11) Badger, Emily

With falling vacancy rates and demand on the rise, developers are looking to the apartment market to break ground on new buildings. “Construction cranes are coming back on the scene after a stay in storage,” said Reis Senior Economist Ryan Severino.

AvalonBay Communities has $1billion in new developments under way, breaking ground on four communities in the third quarter alone. Firm President Timothy Naughton says that there is about $3 billion in the development pipeline for the next two to three years, and $600 million in developments will start in the fourth quarter. UDR has about 2,500 units under development, worth $751million, and the firm is seeking more sites to buy.

Rental housing construction is even beginning in hard-hit Florida, but analysts caution that the lag time between a target, obtaining financing, and development can be up to 18 months. “At this point, there is some noticeable pickup in new construction, but a lot more pre-construction activity is going on,” said Mark Obrinsky, NMHC chief economist. Most analysts say that construction will not rise until late next year.

New apartments will range in size and price, and some markets are considered more desirable than others, particularly the Virginia suburbs outside Washington, D.C., Los Angeles, and Houston. AvalonBay, however, has expressed concern that as fiscal stimulus dries up, new inventory in the D.C. area may be unlikely as employment growth slows. Markets that attract young renters include those with high-tech jobs, like Northern California, Seattle, and Boston.

Obrinsky, however, warns, “There are of course things that get in the way. The economic outlook is a little uncertain now. lf things should worsen considerably, some of this pre-construction activity probably gets put on hold.”

From “Construction And Rent Rise In Apartment Housing Boom” http://bit.ly/vn3nQ9

Investor’s Business Daily (11/10/11) Alva, Marilyn

The housing market still looks grim, but the rental side hints at recovery. Housing investments have dropped from 56 percent in the early 1980s to just 6.3 percent, and house prices have fallen 30 percent from their peak. Nearly 10 million borrowers are delinquent on their mortgages and nearly 25 percent of all mortgage borrowers owe more than their house is worth.

The oversupply of housing is compounded by the fact that the rate of new household formation in the U.S. is well below normal, primarily because more young people are staying in their parents’ houses. An economic recovery would encourage the 1.5 million “doubled up” young adults to leave home, and that will favor the rental sector.

Already the rental sector looks far stronger than the single-family sector. Vacancies are down and rents are rising. Construction is also up, with housing starts rising 15 percent from August to September and 53 percent of that increase were for new structures of five units or more.

From “Rising From the Ruins” http://econ.st/tMHDgP

Economist (11/05/11)

Equity Strategist Peter Boockvar says that there is a new housing market reality in which the homeownership will return to its long-term trend of 65.5 percent, down from a high of 69 percent. Homeownership is likely to dip even lower than the long-term trend as more people rent rather than own.

He indicates that the American Dream may no longer be solely focused on owning a house, but the pursuit of life, liberty, and happiness. He says that renting provides dynamism to the economy because it offers flexibility. The economy will not really recover until house prices rebound because foreclosures are the nooses around the necks of banks, he warns. However, having more renters is a good thing because they can move to where the jobs are.

From “New Housing Reality”

CNBC.com (10/19/11)

http://bit.ly/rba5F7

Tax reform is on the agenda as the federal government looks to close deficits and reduce spending, and two previous fiscal commissions of two different presidents have proposed eliminating the mortgage­ interest tax deduction. Additionally, more research from the London School of Economics and the Brookings Institution has pointed to the ineffective nature of the deduction in boosting homeownership. Moreover, a recent Bloomberg Poll found that most Americans would consider ending the mortgage­ interest tax deduction and other tax deductions in exchange for lower tax rates.

Only 25 percent of Americans include mortgage interest on taxes, given that renters and homeowners without mortgages have no interest to deduct and lower- and middle-class homeowners do not itemize and take the standard deduction. Dennis J. Ventry Jr., a professor specializing in tax law at the University of California-Davis School of Law, says the deduction costs nearly $100 billion annually and is “the most inequitable and inefficient provision in the Internal Revenue Code.”

A study suggests that about 46 percent of the deduction’s tax benefit goes to households earning more than $100,000 per year. However, experts say the consequences of eliminating the deduction are hard to calculate, though adverse effects could be tempered through a gradual phase-out of the deduction and its replacement with a flat tax credit for all taxpayers.

From “A Taxing Debate: The Mortgage-Interest Deduction” http://bloom.bg/qvliZk

Bloomberg (10/18/11) Steverman, Ben

Economists at the Federal Reserve Bank of Boston analyzed consumer sentiment data from the Michigan Survey of Consumers and found that age and personal experience play a role in a person’s willingness to purchase a house amid falling prices. Younger respondents to the Michigan survey “are relatively less confident about homeownership after larger declines,” which means they may be hesitant to make house purchases over the long term.

“In terms of the striking age differential, one possibility is that relatively young respondents were indeed more malleable, and hence they internalized the sharp drop as a regime change,” according to Boston Fed Economists Anat Bracha and Julian Jamison. Respondents over age 58 were those who viewed house price declines as temporary.

From “Next Generation of Homeowners Are Freaked Out” http://on.wsj.com/qHAqsq

Wall Street Journal (10/18/11) Derby, Michael S.