Renter household formation remains at the strongest level in decades. Roughly 1.32 million new renter households were formed in the past year (including owner conversions), while the number of owner-occupied households declined by 175,000. Resident turnover and move-outs to homeownership remain near historic lows for most operators. Incoming leasing traffic is more than offsetting move-outs while paying higher rates.

The home ownership rate declined yet again in the fourth quarter of 2012, according to a new report from the U.S. Census today. It now stands at 65.4 percent, down from 66 percent a year ago and from a high of 69.2 percent in 2004. If you include the 5.3 million borrowers who are delinquent on their mortgages or in the foreclosure process, per Lender Processing Services, the real home ownership rate is even lower.

“The fact that the housing recovery is being driven principally by investor demand means that the slight decline in the homeownership rate in the fourth quarter is unlikely to be the last,” notes Paul Diggle of Capital Economics.

(Read More: World’s Most Expensive City to Rent Is…)

There is also a tremendous amount of pent-up demand for the rental market, as nearly 23 million young adults, male and female, under age 35 (31 percent of the cohort) are currently classified as ‘living at home’ with parents, according to Raymond James’ analysis. As job growth improves, they will move to rental apartments; the homeownership rate for this group is only 34 percent.

(Read More: Rentals Chip Away at Home Builder Gains)

Investors are also concerned about a 49 percent jump in multi-family construction permits from a year ago, but those permits are still running well below normal levels, and every year about 150,000 units are removed from housing stock for various reasons, like age and damage.

Suffice it to say that the apartment sector and the multi-family REITs will likely see a surprise to the upside in 2013. Rents will still rise, despite housing affordability and growth in the single family market.

(Read More: Real-Estate Tips from a Mega-Broker to the Stars)

Article source: http://www.cnbc.com/id/100416547

Renter household formation remains at the strongest level in decades. Roughly 1.32 million new renter households were formed in the past year (including owner conversions), while the number of owner-occupied households declined by 175,000. Resident turnover and move-outs to homeownership remain near historic lows for most operators. Incoming leasing traffic is more than offsetting move-outs while paying higher rates.

The home ownership rate declined yet again in the fourth quarter of 2012, according to a new report from the U.S. Census today. It now stands at 65.4 percent, down from 66 percent a year ago and from a high of 69.2 percent in 2004. If you include the 5.3 million borrowers who are delinquent on their mortgages or in the foreclosure process, per Lender Processing Services, the real home ownership rate is even lower.

“The fact that the housing recovery is being driven principally by investor demand means that the slight decline in the homeownership rate in the fourth quarter is unlikely to be the last,” notes Paul Diggle of Capital Economics.

(Read More: World’s Most Expensive City to Rent Is…)

There is also a tremendous amount of pent-up demand for the rental market, as nearly 23 million young adults, male and female, under age 35 (31 percent of the cohort) are currently classified as ‘living at home’ with parents, according to Raymond James’ analysis. As job growth improves, they will move to rental apartments; the homeownership rate for this group is only 34 percent.

(Read More: Rentals Chip Away at Home Builder Gains)

Investors are also concerned about a 49 percent jump in multi-family construction permits from a year ago, but those permits are still running well below normal levels, and every year about 150,000 units are removed from housing stock for various reasons, like age and damage.

Suffice it to say that the apartment sector and the multi-family REITs will likely see a surprise to the upside in 2013. Rents will still rise, despite housing affordability and growth in the single family market.

(Read More: Real-Estate Tips from a Mega-Broker to the Stars)

Article source: http://www.cnbc.com/id/100416547

There were just over 200,000 multi-family housing starts in 2012, according to the U.S. Commerce Department, far lower than the annual average of 340,000 over the past decade.

“We are still woefully short of what’s going to be coming in terms of demand,” says Buck Horne, a housing analyst at Raymond James. “Lennar is going where the demand is going to be. They’re going where they know they can make money.”

Lennar has positioned itself with offices in Atlanta, Charlotte, Chicago, Dallas, Denver, Miami, Orange County, San Francisco and Seattle, all markets where apartment demand is high, despite a recovery in the housing market.

“You’ve got to be very selective about your locations,” warns Miller. “We stay pretty thoughtful about where there are imbalances and too much building going on. This is not a market where you can start building any place.”

Miller is not concerned with competition from investors in the single family rental market, again focusing on location as his leg up. A lot of the foreclosed properties being absorbed by hedge funds and the like are not concentrated in the top markets targeted by Lennar. They are either inner city or third-level suburban, according to Miller.

Expanding household formations, coupled with credit and down payment-challenged new home buyers will benefit the rental sector for the foreseeable future. Many renters will eventually move to home buying, especially as their families expand. For Lennar, getting those potential buyers into a Lennar rental can only benefit the builder in the future.

“In many instances, the very first introduction to housing is through rentals and through branding and knowing consumers. Being there gives us a leg up and advantage in terms of new home sales later,” says Miller.

Article source: http://www.cnbc.com/id/100407898

We didn’t need KB Home’s dismal quarterly earnings release today to tell us that foreclosures are digging home builders into an even deeper hole.

We knew that already; this just put a period on it.

KB [ KBH 11.69  +0.00 (+0.00%) ] caters to first time home buyers, with smaller, less expensive homes. Unfortunately, bargain basement foreclosures, many of which are relatively new construction, offer more home for the money, and first time buyers are making up less of the buying population today than historical norms.

Right now banks are pushing foreclosures to market faster than ever, perhaps due to improving paperwork procedures, and perhaps due to the fear of some kind of settlement/penalty coming down the pike from state attorneys general and federal regulators. In any case, the volumes are rising, and that hurts home prices and home builders.

“We continue to think prices will be under pressure throughout 2011; we may have to re-evaluate all of our assumptions given the weakness we’re seeing right now,” notes analyst Buck Horne at Raymond James.

So what’s a builder to do?

Well, Lennar [ LEN 18.32  +0.00 (+0.00%) ] has been investing in troubled mortgages through its Rialto Capital Advisors division, and that has helped boost its bottom line.

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