The national homeownership rate fell to 66.4 percent at the end of the first quarter—the lowest figure in 13 years—down from 67.2 percent a year earlier.

And that flight from ownership has had a big effect on the multifamily industry’s improving fundamentals. Unlike in previous upturns, the apartment sector’s recovery isn’t being driven by robust job creation or a rapidly improving economy. Where there has been new household formation, it’s been lopsided in terms of how much is directed toward rental housing.

Many in the apartment industry are now wondering if that shift away from ownership is structural (permanent) or cyclical (temporary)?

A Behavioral Shift?
One popular belief—echoed throughout countless multifamily conferences—is that the shift is largely behavioral, that the bloom is off of the rose of homeownership for many members of Generation Y. But this is likely a mistaken assumption.

“There’s no evidence at this point to support the definitive thesis that young American households are permanently biased away from homeownership,” says Sam Chandan, global chief economist for New York-based market research firm Real Capital Analytics. “History suggests that that bias is largely cyclical.”

The desirability of homeownership changes as the housing market changes, according to Chandan. It’s a function of people’s expectations about the value proposition of owning a home. And since home values aren’t expected to rise in the near term, the bias toward renting is clear.

Indeed, ownership is no longer viewed as a can’t-lose investment strategy. “That’s different than what we’ve previously seen in most coastal markets,” says Greg Willet, vice president of research and analysis at Carrollton, Texas-based MPF research. “But it’s actually not anything new for large parts of the country, like the Midwest. There, the premium to buy versus rent traditionally has been fairly small, and home appreciation traditionally has been pretty modest.”

One reason that home sales have been slow to bounce back is purely demographic, Willet suggests. “We simply don’t have very many people at the typical age for first-time purchase right now,” Willet says. “Those in their early- to mid-30s are at the tail-end of the comparatively small Gen X group.”

But once the oldest of the much bigger Gen Y group starts hitting their early to mid-30s in a few years, it wouldn’t be surprising for home sales to rise again. It may take longer since more people are marrying and having children later in life. And many budding careers of Gen Yers have been stalled by the economy, so it may take them longer to save up for a downpayment. “But it still seems like a pretty reasonable assumption that Gen Y households at some point will turn into their parents, just like every previous generation has,” Willet says.

A recent poll on Gen Y’s attitudes toward housing, conducted for the Urban Land Institute, sheds light on this issue. The survey polled 1,241 people aged between 15 and 32 and found that 35 percent already owned a home, and of those that didn’t, 90 percent envision becoming a homeowner.

A Structural Shift (in Finance)
The desirability of owning a home, the behavioral aspect, is likely cyclical. But the good news for apartment owners is that the ability to finance a home purchase will shift in a more permanent way.

The housing finance landscape is on the cusp of a structural change. First, the implicit government guarantee that Fannie Mae and Freddie Mac enjoyed allowed them to offer lower mortgage interest rates than the competition. As that guarantee is reshaped, interest rates will likely rise.

Downpayment expectations will also change—the days of putting little or no money down to buy a house are likely over. Another consideration is the mortgage interest deduction—there’s a lot of political momentum now to phase it out in some way, most likely for those in higher tax brackets.

“It’s not that young American families don’t anticipate being homeowners at some point; they just think of it being farther into the future,” Chandan says. “The fundamental structural shift in housing finance necessitates that.”

In other words, the spirit is willing, but the financing prospects are weak.

In the long-term, absent those mortgage subsidies, a sustainable homeownership rate is probably between 62 percent and 64 percent, according to Chandan. Yet, over the next couple of years, the homeownership rate may actually rise. The government will continue to support the housing market in the next year or two to help the broader economic recovery.

“It’s perfectly conceivable that we could see homeownership rates tick up a little bit as employment growth improves,” Chandan says. “But once you account for the ultimate winding down of policy interventions to support stability in the housing market, that long-term homeownership rate is lower than what we see today.”

In some ways, the pace of job creation this year is ideal for multifamily owners—there’s just enough, about 200,000 jobs a month, to start leveling out the economy. But there’s not enough job growth to send people flocking back into the for-sale pool.

“I think it’s actually better for the apartment sector if we have modest growth, rather than it taking off,” Willet says. “If employment growth got meaningfully stronger than it is, that’s going to help fuel a comeback in the single family market. And a lot of progress we’ve made thus far has been tied to people not leaving rentals to make purchases."