The One Safe Place in Real Estate

I feel obliged to reveal one corner of this time of great turmoil that might actually make sense.

By 2050, the population of California will soar from 40 million to 50 million, and that of the US from 340 million to 400 million, according to data released by the US Census Bureau and the CIA Factbook (check out the population pyramid below).

That means enormous demand for the low end of the housing market–apartments in multi-family dwellings. They will be joined by generational demand for limited rental housing by 65 million Gen Xer’s and 85 million Millennials enduring a lower standard of living than their parents and grandparents.

These people aren’t going to be living in cardboard boxes under freeway overpasses. The trend towards apartments also fits neatly with the downsizing needs of 80 million retiring Baby Boomers. So you have three different generations converging on a single sector of the real estate market. Prices here will hold up, and may even rise.

Rents are now rising at more than 5% a year in some of the more popular markets, and vacancies are dropping like a stone. Good luck finding an apartment in Silicon Valley. Fannie and Freddie financing is still abundantly available.

Institutions combing the landscape for low volatility cash flows and limited risk are now accounting for up to 30% of the low-end market. In some markets, it is now cheaper to buy than to rent, a 50-year reversal, if you can get the credit.

More a Rectangle Than a Pyramid

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