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Home Buying has always been the way to go first and for most over renting.

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Home Buying has always been the way to go first and for most over renting.
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By Peter Grant and Laura Kusisto
Nov. 7, 2017 7:00 a.m. ET
64 COMMENTS
Rising homeownership is adding to the jitters in the residential rental market, which has slumped recently after a long stretch near the top of the commercial real-estate industry.

For most of the current economic expansion, declining ownership rates have enabled landlords of apartments and single-family homes to raise rents far faster than the pace of inflation. Demand has been fueled by the millions of people who haven’t had the money, credit or desire to pursue the traditional American dream.

But amid a hot housing market, the homeownership rate is now rising, in part because millennials are reaching the age when they’re forming families and settling down.

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The Census Bureau last week reported that ownership increased to 63.9% in the third quarter, the highest level since 2014. The rate was up from 63.7% in the second quarter and 63.5% a year earlier. It remains below the 69% clocked at the peak of the housing bubble a decade ago.

Still, the recent trend is causing analysts and investors to wonder whether the rental market’s good times are coming to an end. Investors pumped tens of billions of dollars into the sector during the recovery, building and buying apartment complexes and amassing large portfolios of single-family homes.

Buildup
Multifamily housing units underconstruction
THE WALL STREET JOURNAL
Source: U.S. Census Bureau
Note: Seasonally adjusted
RECESSION
2000
’05
’10
’15
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
One early warning sign came last week, when American Homes 4 Rent , AMH 0.78% which owns more than 50,000 single-family properties across 22 states, reported disappointing revenue growth for the third quarter. Analysts will be closely watching earnings from two other big companies with similar portfolios. Invitation Homes Inc. and Starwood Waypoint Homes , which agreed in August to merge, will both report results on Wednesday.

“Up to now, there really hasn’t been a chink in the armor of rent growth,” said John Pawlowski, an analyst with Green Street Advisors.

Many analysts predict that any pain that rising homeownership causes to the rental sector will be felt by these companies first, before renters of luxury apartments in big cities, for two reasons. First, house-for-rent companies tend to own properties in more affordable, nonurban markets. Second, people living in such homes have already opted for the single-family home lifestyle and so are more likely to become a homeowner.

To be sure, multifamily investors aren’t headed for the door. The homeownership rate is still well below the historic norm of 65%, and growth could be slowed by such forces as rising interest rates and last week’s tax code overhaul proposed by House Republicans.

A spokeswoman for American Homes 4 Rent said: “We believe our country’s cumulative undersupply of housing stock, along with shifting preferences towards rentership provides a favorable landscape for single-family rentals into the future.”

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