Homeownership rates and rental occupancy have a strong correlation. If you want to make projections about your real estate market, be sure to pay attention to certain statistics, says Michael Lim, senior director of analytics at TransUnion. When rental occupancy dips, homeownership typically rises, and vice versa. And, within the past year, market dynamics have become favorable supporting the potential rise in homeownership, he says.
Homeownership is more attainable now
For the first time since 2004, the number of new renter households formed dropped in the second quarter of 2017. Whats more, year-over-year rent growth slowed through July 2017. Rates are still low and some mortgage programs are offering low down payment requirements and even the option of consolidating student loans into a mortgage, Lim says, making the transition from renting to homeownership more attainable.
What’s more, according to a recent TransUnion study, millennials’ interest in homeownership has been steadily growing over time. In 2017, 29 percent of non-homeowners who shopped for mortgages were millennials. Furthermore, homebuying sentiment increased overall with 62 percent of renters saying that it’s a good time to buy a home.
Factors keeping millennials in rental housing
However, there are two areas still hindering millennial buyers, Lim says. The first is credit score. As of the second quarter of 2017, 41 percent of 25- to 34-year-olds who are non-homeowners do not have scores high enough to qualify for an FHA loan (cutoff at 580 Vantage 3.0 score). Real estate professionals could help by offering resources on how to improve credit scores in preparation of purchasing a home.
The second issue is housing supply. “Starter homes have historically been the gateway to homeownership but tight supply could keep many millennials and young Gen Xers in rental housing longer,” he says. Now, tight supply is causing price increases that are unaffordable for many first-time buyers. Keep a close eye on the starter home inventory in your market and prepare your clients to move quickly when a home becomes available that meets their needs.
Source: Michael Lim, senior director of analytics at TransUnion