When will the Residential Rental Bubble Begin to Leak?
Last week I proposed that residential real estate is healthy and in for a long, traditional and gradual increase in value, along the lines of pre-2001 levels. Two to three percent per year. The reason for this optimism is that Millennials are coming of age.
Since the mid-2000s, Millennials have rented. Partly because student loan debt has made it difficult for them to secure a home loan. Partly because of the 2007 nightmare during which they watched their parents lose their homes or struggle with homeownership. Partly because more women are driving toward careers, and so are working longer hours and facing relocation as opportunities arise. Renting is easier.
The oldest Millennials, however, are now passing their mid-thirties. It’s been 10 years since the 2007 housing meltdown and the economy is now strong. They are established, getting married, contemplating or having children, and thinking about where to raise them. They are ending their renting ways and beginning to buy homes.
For the next several years, however, this should not matter that much to renter-investors. More Millennials/Gen Z’s are graduating, many with the same debt problems and entering the rent rolls behind them.
The Turning Point? The final pop in birth rates in the US was in 2006. After that, the birth rates drop significantly. https://www.cdc.gov/nchs/data/nvsr/nvsr66/nvsr66_02.pdf
The youngest Millennials/Gen Z’s won’t be graduating from college until 2028 and grad school in 2031 or so. Like their predecessors, they will both drive toward careers, wait to start families and rent for a good period of time.
Immediately behind them, however, is the next generation. That generation, which is not named, is about 12 at its oldest, and is comparatively tiny. Sure, they will rent out of college, but there are far fewer of them, so that they will not be able to replace the Millennials who are ending their rental lives.
Until the early 2030’s, demand for rentals by economy-driving youngsters should stay steady, putting off any sort of bursting or leaking of the rental markets.
The wild-cards are immigrants and the aging Boomers.
The US population is growing largely because of immigration. Deaths and births in the US are close to equal, yet we are adding 1 person every 15 seconds. https://www.census.gov/topics/population.html
If the current administration has its way, immigration will be more limited, perhaps only to highly productive or wealthy individuals. Will they have permanent status or temporary? If the latter, one would expect them to rent at higher levels.
The Boomer generation has property ownership at its cultural core. I can’t imagine the top economic half choosing to rent over buying, even when downsizing. They may move into condos, town homes and independent living communities, but not likely into traditional rental units.
In fact, those Boomers who took a credit hit after 2007, through foreclosure, bankruptcy, short sale, have seen those issues fall off their credit reports. With suddenly stronger credit scores, we may see some who have been renting get back into home ownership.