As I’ve anticipated for weeks the Federal Reserve said on September 18th that it would continue buying bonds at an $85 billion monthly pace for the time being. The Fed is concerned that a sharp rise in borrowing costs in recent months could hurt the housing market as well as the rest of the economy.
Fed Chairman Ben Bernanke refused to commit to so-called “tapering” of its bond purchases later this year, as he had previously suggested. “There is no fixed calendar schedule. I really have to emphasize that,” he told a news conference. “If the data confirm our basic outlook, if we gain more confidence in that outlook … then we could move later this year.”
Everyone from Wall Street to Main Street breathed a huge sigh of relief. The yield on the 10-year Treasury, the benchmark for mortgage rates, fell over 5% down to 2.71%. As the CEO of homebuilder Toll Brothers (NYSE:TOL) said in a CNBC interview before the Fed’s announcement, the demographics don’t change no matter what the Fed decides.
“Our average house is over $600,000, so we sell to the second, third time move-up,” CEO Doug Yearley said in the interview. “They [our home buyers] don’t have the mortgage issues. Twenty percent of our buyers are all-cash and those that get a mortgage put 30 percent down.”
How about the rest of the population demographics, the ones who don’t have that kind of money? Yes, the 90% of the population who isn’t cash-rich with upper middle-class incomes. The CEO of the nation’s largest publicly-traded residential apartment REIT, Equity Residential (NYSE:EQR) stated emphatically that more people than ever will choose to rent rather than own a residence.
CEO David Neithercut told CNBC that “the rental market in NYC is on fire and we have every reason to believe it will stay that way”. The same is true in most major metropolitan areas. Even if mortgage rates settle lower in the months to come, the vast majority of the U.S. adults who don’t already own a home will not be able to afford or qualify for the high cost of home ownership.
When one factors in property taxes, insurance and maintenance to the monthly mortgage expense it’s easy to see that renting is still the more affordable option. Neithercutt pointed out that the “Millennial Generation” wants to live in areas where the cost of housing it too expensive to buy.
“There are 4 million people turning 21-years old every year in this country…there will be 1.3 to 1.4 million households being formed every year and institutional grade; core multi-family [rental housing] will attract a significant percentage of them.” The CEO of Equity Residential also said that 43% of the units they own and manage are occupied by single individuals. “They have no intention of moving to the suburbs and buying a single-family home.”
Millions of renters under the age of 35 are choosing to live in the city and can only afford to rent. They’re getting married later in life and moving to the suburbs later as well. Demographics is the key to why the number of adults who chose to rent a residence will continue to grow. This can lead to increasing business opportunities for property managers in all regions.
Sourced from Property Manager