Demand for rental units in the United States is still holding strong and has been driving up prices of multifamily apartments.
In its latest U.S. Economic and Housing Market Outlook, Freddie Mac - the lending giant - revealed that construction on multifamily homes continued to rebound and most of the buildings were rental offerings.
"Over the past four quarters, all the growth in net household formations has been among renters," Freddie Mac's report notes adding that there has been a steep 9 percent decline in the home ownership rates, especially among people aged 35 years or lesser in last ten years.
The rising demand for rental units has caused prices to go shooting through the roof. According to a RealtyTrac report, rents have risen 6 percent in the last decade. Rents in major areas like San Francisco, Los Angeles and New York City are now at their highest.
Vacancy rates have also fallen to new lows with the upsurge in demand.
"The apartment market has been vibrant, reflecting the desire of many Millennials to live in an urban setting and retain locational flexibility," Frank Nothaft, chief economist at Freddie Mac, said in a statement.
"Unfortunately, if they're looking to live in the larger cities, that's where rents are rising the fastest, especially in the West or Northeast regions of the United States - places like Los Angeles and New York City. In the South region, areas like Miami and the Washington-Baltimore metro have seen real rents exceed the U.S. average. But in the Midwest, only the Chicago metro area has outstripped the U.S. average," he added.
So, what exactly is fuelling demand for rental units? Falling incomes, fear of obtaining a mortgage and economic instability are some of the major factors.
According to the Realtor Magazine, Americans are now earning 13 percent lesser than what they used to earn 10 years ago. Also, more than half of the renters are putting in 30 percent of their income into rents, which is up 12 percent from a decade ago.
Also, most renters believe that obtaining a mortgage is difficult and also do not understand the complex process of application completely.
Plus, a demographic shift is also driving demand for rental units. As the number of single households increase, rentals could become even more expensive.
But, the American dream of owning a home is not dead yet. Experts suggest that many renters are waiting for the economy to steady down before making a property decision.
