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Apartment builders continue to feverishly build to capitalize on rising rental rates and favorable demographics, but construction is reaching danger levels in some markets.
Uniquely Competitive Environment
With homeownership costs at the lowest levels in decades and a surge in vacant single-family rentals, renters have plenty of options these days.
- The average monthly cost of homeownership is currently equal to or below the average rental rate in most markets.
- The move-out to purchase ratio (as reported by the apartment REITs) has risen to 14% from 11% in 2010.
The chart below compares the multifamily permit activity over the last 12 months to the 22-year average for the top 22 apartment markets.
Home prices have gone through a severe bear market for the past five years, after experiencing a strong rising market for several years before that. While some have become discouraged about residential real estate, the time for discouragement is past. Today's combination of low prices and low mortgage rates makes home buying very attractive. More than that, the real estate cycle itself is now far over-depressed, well below its long-term trend. The natural-and powerful-turn of that cyclic wheel in itself creates a major force driving appreciation of home prices over the next several years. To see this, we'll look at one of the most cyclic areas of all: California.