Home market to stay strong in Rochester
Low interest rates spur building, buying spree
By Jeffrey Pieters
In the housing market, Rochester's future calls for more of the same -- rapid growth -- during the next five years, according to a recently completed study.
The study's author, Twin Cities-area consultant Scott Knudson, said that growth, 900 to 1,080 households per year, primarily will be in the market for single-family homes.
Rochester largely satisfied its near-term demand for rental housing during a period of heavy apartment construction during the past few years, Knudson said.
The study, commissioned by the Olmsted County Housing and Redevelopment Authority, was based largely on an examination of statistical trends during a five- to 10-year period.
Knudson presented his findings Monday to the Rochester City Council at its afternoon Committee of the Whole meeting.
A combination of affluence and low interest rates has fueled heavy demand for single-family houses during the past several years, Knudson said.
What's more, Rochester's fastest-growing age bracket -- age 45 to 64 -- consists of people who are most likely to buy houses. Eighty-four percent of people in that age group are homeowners.
Ninety-two percent of Rochester's residential development since 1990 has consisted of single-family houses, Knudson said. Traditionally, Rochester's housing stock has been broken down as three-fourths owner-occupied, one-fourth rental.
Even the relatively small portion of development given over in recent years to rental housing was enough to inflate vacancy rates, Knudson said. Rochester added 1,400 rental units since 1998.
About half of the new rental units were so-called "luxury" apartments, with rents of $1,000 or more for a two-bedroom unit. The vacancy rate for those apartments, 17 percent, is the highest for any rental category. Those figures do not account for 146 new luxury apartments under construction in the Broadway Plaza development in downtown Rochester, Knudson said.
Rochester built about 300 market-rate apartments since 1998, with the vacancy rate increasing during that time from near zero to just more than 10 percent.
Low interest rates on mortgages apparently lured many renters to be homebuyers. Knudson said several apartment managers reported tenants willing to pay penalties to break their lease agreements in order to jump into a low-interest mortgage.
The late 1990s, Knudson said, "was a very strong period nationwide for homeownership, but it was particularly strong for your community."