Reads the headline this week from Real Estate News, a publication from REALTOR.COM. The article was quoting from a New York Times piece which sated that homeownership is at an all-time low of 63.7% down from 69% in 2004. No surprise here as 2004 was the heyday of “go-go” loans, meaning that if you passed the mirror test you qualified for a mortgage, regardless of your bad credit, and that’s another story. On the other side of the low homeownership coin is the face of rising rentals. Did you know that since 2004 rental households (not rental units) have climbed 770,000 annually? Who are these renters, why they are our friends the millennials who are new to the job market, putting off starting a family, and who seem to be self-absorbed in spending money (on themselves of course). But joining them are a bunch of folks who got suckered into taking on a mortgage that they couldn’t afford, folks who are now approaching 50 years who in past times would have been solidly in place in a home that the own, but now have to rent because of poor credit. We do rent to these folks but only after verifying that they have good jobs with adequate income and after obtaining an additional security deposit.
According to a recent CNBC piece the May nationwide apartment occupancy rate is 95.3%, or wise stated, it is FULL. With such high occupancy rates you could expect that rents would also climb and that is exactly what happened. The rent nationwide grew 5% in May, the fourth straight month that this has occurred. Needless to say, landlords are off to another great year. The Urban Institute’s Lisa Goodman states in the article that homeownership nationwide is at 63.7%, the lowest level in 25 years, and will continue to decline until 2030. What happens in 2031 she couldn’t say because I guess her crystal ball got fuzzy. She did predict that there will be 22 million new households formed in the next 20 years and that 13 million of them will be renters. Goodman stated that the Millennials today are a much more diverse lot than baby boomers both racially and ethnically and that means less homeownership. Why this is so was not stated and to me is a puzzling statement. Goodman further stated that higher rents will drive some Millennials to homeownership “if” they can scrounge up down payment. The down payment is becoming elusive for many folks because home prices keep rising, rents keep rising, and paychecks aren’t (can’t) keep pace with raising rents and home prices.
And this is where we investors in Austin area real estate come into play. We don’t rent out apartments, we rent something much better. We rent out nice looking, single family dwellings that are well maintained. This product appeals to this large rental pool that gets larger daily. And don’t forget, our area is attracting a vast segment of those Millennials because the Austin area offers the things they are looking for. Work with good pay, a clean environment, live music, and a “can do” attitude. If the traffic would go away this place would be close to paradise!
So to sum, owning Austin area real estate is a fantastic investment and looks to stay that way for a long time, or at least until 2030.
As reported in the Austin American Statesman last week Austin sidestepped the fall in oil prices and the state has shaken off any dust from that fall. In May the Austin area added 6,800 jobs (or about the size of a small city). The May unemployment rate, according to the Texas Workforce Commission was 3.1% up from 3% from May of 2014 but the agency does not immediately adjust for seasonal factors such as students now entering the job market. The Austin area has a job rate growth so far this year of 4.4% up from 3.8% last year. This indicates that our area should really see super accelerated job growth. The Texas Workforce Commission stated that Central Texas has added 32,000 jobs so far this year…now that’s impressive!
So what does this mean for us investors in Austin area residential rentals? It means that we are holding the right cards to make money.
As reported in this week’s Recon, The Texas Real Estate Center’s on line news, an investment group plans on building a huge entertainment venue called NL and Surf Park, near Austin International Airport. Heading the investment group is a member of the Coors Brewing Company. The venue will have no fewer than 11 surfing areas ranging in height from 1’ to 6’ in height. The lagoon will be about the size of 9 football fields (about right for Texas). There will be a Tiki Bar (serving Coors beer I’ll bet) where one can whet their whistle, and a concert area that can hold 2,000.
This will be the second large such water park in the area, the first being Hawaiian Falls in Pflugerville about 20 miles away. I guess the new folks that with so many folks moving to our area and traffic being so bad, it makes good sense to have one such event north of town and the other south of town.
Just more good reasons to own Austin area residential rentals.