Housing recovery starts with apartments, follows with home buying

David Shulman, senior economist at UCLA's Anderson Forecast, says the housing economy is in the process of rebuilding. Shulman sees a boom in multi-family construction, especially for rentals. He expects starts to reach 260,000 units in 2012, more than double the level in 2009, and then exceed 400,000 by 2014. It's the combination of low vacancy rates, rising rents, and a flood of institutional investors. From UCLA Economic Letter:

With 10-year U.S. Treasury yields below 2%, institutional investors are seeking out higher yielding alternatives and they are finding rental apartments to be increasingly attractive. Rising rents offer the prospect of higher future income and capital appreciation. Of course this boom in multi-family construction will have within it the seeds of its own destruction. As rents rise, consumers will shift out of rental into ownership units. The American Dream of homeownership may be comatose, but it is not dead, and the wake-up call will come in the form of higher rents.