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Guess Who's Driving the Demand for Rental Apartments?

But, again, shouldn't that rebound in home prices and growing confidence in housing still push more renters to buy, despite the female argument? Investors certainly think so. While stocks of the nation's homebuilders are up over 60% from a year ago on the PHLX Housing Sector Index, multi-family REIT's actually under-performed and inversely correlated to home builders. Investors were concerned about the single-family home recovery stealing renters. But should they be?

No, according to a recent Raymond James report:

Renter household formation remains at the strongest level in decades. Roughly 1.32 million new renter households were formed in the past year (including owner conversions), while the number of owner-occupied households declined by 175,000. Resident turnover and move-outs to homeownership remain near historic lows for most operators. Incoming leasing traffic is more than offsetting move-outs while paying higher rates.

The home ownership rate declined yet again in the fourth quarter of 2012, according to a new report from the U.S. Census today. It now stands at 65.4%, down from 66% a year ago and from a high of 69.2% in 2004. If you include the 5.3 million borrowers who are delinquent on their mortgages or in the foreclosure process, per Lender Processing Services, the real home ownership rate is even lower.

"The fact that the housing recovery is being driven principally by investor demand means that the slight decline in the homeownership rate in the fourth quarter is unlikely to be the last," notes Paul Diggle of Capital Economics.

There is also a tremendous amount of pent-up demand for the rental market, as nearly 23 million young adults, male and female, under age 35 (31% of the cohort) are currently classified as 'living at home' with parents, according to Raymond James' analysis. As job growth improves, they will move to rental apartments; the homeownership rate for this group is only 34%.

Investors are also concerned about a 49% jump in multi-family construction permits from a year ago, but those permits are still running well below normal levels, and every year about 150,000 units are removed from housing stock for various reasons, like age and damage.

Suffice it to say that the apartment sector and the multi-family REITs will likely see a surprise to the upside in 2013. Rents will still rise, despite housing affordability and growth in the single family market.



--Written by Diana Olick at CNBC

CNBC is a world leader in business news, providing real-time financial market coverage and business information.
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