A recent report by a major firm, covered in Bloomberg, indicates that the home ownership rate is declining:
The U.S. homeownership rate has fallen below 60 percent when delinquent borrowers are excluded, a sign of the country’s move toward a “rentership society,” Morgan Stanley said in a report today.
The national rate, which stood at 66.4 percent at March 31, would be 59.7 percent without an estimated 7.5 million delinquent homeowners who may be forced into renting, according to Morgan Stanley analysts led by Oliver Chang. The lowest U.S. homeownership rate on record was 62.9 percent in 1965, the first year the Census Bureau began reporting the data.
The homeownership rate reached an all-time high of 69.2 percent in 2004 as relaxed lending standards fueled home sales and President George W. Bush promoted an “ownership society.” Mortgage delinquencies, foreclosures and tighter credit for housing loans are reducing property buying, Chang said.
“Taken together they are forcibly moving the country away from being an ownership society,” Chang, based in San Francisco, said in an e-mail. “This change is only beginning, and is moving the country towards becoming a rentership society.”
The analyst discussed the investment implications of the change:
The shift provides opportunities for builders of multifamily homes and investors in single-family houses leased to renters, Chang said in a phone interview. The U.S. apartment vacancy rate fell to 6 percent in the second quarter, the lowest in more than three years, research firm Reis Inc. said July 7.
Here’s the part I find interesting: the market figured this out long ago, as you can see from the two-year chart below comparing REZ to the S&P 500.
Click to enlarge. Source: Yahoo! Finance
Based on price action, you can see how much stronger residential REITs have been than the general market. Of course, no one ever knows how long a trend will continue, but this particular trend has already lasted long enough to be quite exploitable by typical relative strength methodologies. As usual, price responds more quickly than the analytic community.
Disclosure: Dorsey, Wright Money Management owns various REIT equities and ETFs across many different account classes.
