HUD reports that since 2010, half of the new households formed in the Albany HMA entered into the rental market, which in turn boosted construction in multifamily residential units.
For many students graduating from university this month with undergraduate and graduate degrees, it is time to face the real world, find a job, buy a house… or is it? Buying a house is becoming increasingly difficult for young adults, which in turn is having profound impacts on the national real estate market. Combined with other generational, societal, and economic factors, these changes have reshaped the real estate market over the last ten years, with more change expected in the next decade. But do local trends reflect what’s going on at the national level?
In the first article in a two part series, I’ll first briefly discuss national real estate trends and then look at real estate data from Camoin’s local neighborhood, the Albany-Schenectady-Troy MSA. In next month’s article, I’ll explore the demographics of the area and examine the relationships between population and real estate.
National Real Estate Trends
It has become clear that two key cohorts, the Baby Boomers (ages 51-69) and Millennials (ages 15-35), will dominate the housing market in the coming years, and have already begun to have an impact on the type of housing styles being constructed across the country.
Older Millennials are now entering the housing market, seeking to purchase or lease their first property. This new generation of homebuyers is faced with a variety of factors affecting their housing preferences, some of which include:
- Tighter lending policies following the financial crisis are making it more difficult to qualify for loans. 1
- Rents are also increasing as we emerge from the financial crisis, making it difficult to save money for a down payment.
- Student loan debt is at an all-time high and some studies suggest that this is discouraging homeownership among young adults.2, 3
- Millennials saw what happened to their parents with the mortgage and foreclosure crisis and many families are still stuck in houses worth less than the mortgage.4
- By waiting longer to get married, having fewer kids, and focusing on building careers, many Millennials do not have a need for larger homes.
- Millennials prefer to live in an environment that is pedestrian friendly and amenity-rich.5
As a result of these trends, a single-family home is unattainable or simply undesirable for many individuals, even if they have decent full-time jobs. According to the Wall Street Journal, the median sales price of existing single-family homes increased by over 11% between 2012 and 2013. Prices in increasingly popular second-tier cities rose at an even faster rate.6
Another cohort having a dramatic impact, Baby Boomers, have been a large force in the economy for over fifty years. This generation is now having a substantial impact on the real estate market across the country because they are staying in the workforce longer than the typical retirement age and increasingly are able to live independently for a longer period of time. At a rate almost as rapid as Millennials, Baby Boomers are seeking alternatives to the single-family home to continue living independently.
Real estate giant Cushman and Wakefield reported that with the American economy on an upward swing, the demand for housing has been bolstered over 2014 and will continue to increase. While there is a demand for housing, there has been a shift in the percentage of individuals and households actually owning property. According to data from the U.S. Census Bureau there was a net decline in owner-occupied housing while there was a net increase in renter occupied households between 2007 and 2013. Part of the reason behind the uptake in renter-occupied units is the tighter lending rules that were put in place following the housing market crash in 2008.
Regional Real Estate Trends and Statistics
The Albany Housing Market Area (HMA), which aligns with the Albany-Schenectady-Troy Metropolitan Statistical Area (pictured below), consists of Albany County, Rensselaer County, Saratoga County, Schenectady County, and Schoharie County. Nested in the HMA are the submarkets of Albany County, Mohawk River and Saratoga County. The population of the HMA is about 880,000.
The U.S. Department of Housing and Urban Development (HUD) reports that since 2010, half of the new households formed in the Albany HMA entered into the rental market, which in turn boosted construction in multifamily residential units. It is also interesting to note that the incomes of rental households increased 0.5% more than owner households from 2009-2013.
The overall rental vacancy rate (including all types of housing) in the Albany HMA is considered balanced at 7.1%. A vacancy rate of 10% is considered “healthy” as it allows the right level of choice for buyers without an over-supply of housing stock that can drive prices down. However, the rental market specific to apartments has a vacancy rate of 3.8%, showing high and unmet consumer demand for rental units. According to the most recent American Community Survey, of those that rent in the MSA, most pay between $800-$899/month.
In the Albany HMA, it is predicted that there will be demand for 2,690 rental units over the next two years, and there were already about 1,450 units under construction as of July 1, 2014. HUD notes that many apartment complexes built in the last five years are located near the Hudson and Mohawk Rivers. Adaptive reuse of former industrial buildings in the Troy and Schenectady area have also been notable apartment construction projects.
Of the submarkets, Saratoga County is expected to have the largest demand for rental units. The demand ranges from 1,050 units in Saratoga County and 980 units in Albany County, to 660 units in the Mohawk River submarket. Saratoga County also has the greatest demand for sales units, followed by Albany County and Mohawk River. Saratoga County growth in both the rental and owner occupied markets can be attributed to relatively low property tax rates and job growth in the local area.
Between June 2013 and June 2014 in Albany County, sales of new and existing homes, townhomes and condos increased 9%. However, the average home price decreased 2% in that same time period, averaging $202,900. In Saratoga County, the sales of new and existing housing units in the same period was down 11%, while the average existing home price increased 3% to $251,700. Lastly, in the Mohawk River submarket, sales of housing units were up 7%, while the average existing home price remained fairly steady, decreasing 1% from the previous year, to $147,900.
Next month I’ll examine the demographics of the Albany-Schenectady-Troy MSA and revisit this data to see what it means for the future of local real estate.
The data for the Albany-Schenectady-Troy MSA is sourced from the U.S. Department of Housing and Urban Development’s Comprehensive Housing Market Analysis for Albany, NY as of July 1, 2014.
For more national and real estate trends in your local area, check out HUD’s website for regularly updated materials at http://www.huduser.org/portal/home.html.