Another report – this time the Securitization Weekly Overview from Bank of America-Merrill Lynch (BAC) – is forecasting a shift away from single-family home purchases to a rental market.
Granted, this is not the first time a report predicting multifamily growth has hit in the past few months, but it does reiterate a common theme – investors are betting on multifamily more often.
Just last week, HousingWire reported that more younger Americans are expected to pile into the multifamily market after spending years in their parents houses or sharing apartments with roommates.
But this younger crowd, while keen on homeownership, apparently lacks the momentum, due to job constraints and a general inability to obtain a mortgage.
It’s something Chris Flanagan, MBS/ABS Strategist with Bank of America-Merrill Lynch and MBS Strategist Justin Borst also recognized in their newly published research.
"The December housing starts report provided some confirmation of the theme we discussed last week, which was that it appears as if a structural shift away from getting a mortgage and buying a single-family home to just being a renter is underway," the pair said.
Such a transition is expected to subdue the possibility of dramatic changes in the single-family mortgage-backed securities market.
Flanagan and Borst note that "this shift should work to keep supply of single-family MBS at what may be surprisingly low levels well into the future. We also noted that we think this shift gives the Fed ample cover to taper its MBS purchases without much impact to mortgage rates, since gross supply of MBS may be shrinking more quickly than the Fed plans to taper."
When comparing multifamily production today to the pre-housing crisis era, it is clear a major shift is taking place. BofA-Merrill Lynch notes that pre-crisis, the multifamily share of housing production hovered at roughly 20%, or one in five home starts.
Jump years ahead to today, and the latest multifamily share of production is up 33% and accounts for one in three homes.
The same analysts concede that with this higher multifamily share trend remaining for years now, a new “equilibrium” has apparently been reached.
The trend prompted Resource Real Estate, a firm led by CEO Alan Feldman, to announce last year that it will continue to try and serve the income-bracket stretching from $30,000 to $70,000 a year by refurbishing older apartment complexes for this growing segment.
"We touch real estate two main ways, we put equity capital towards investing, and we lend across a number of asset classes," Feldman told HousingWire last summer.
By December, his firm was still employing this strategy, noting the forgotten middle-class is trending even more towards renting.
It's a common theme that the numbers from BofA-Merrill Lynch seem to confirm for now.