With homeownership lagging, rental units have stepped up in today's housing market.

Freddie Mac Chief Economist Frank Nothaft released the October 2011 Economic Outlook yesterday, reporting a decrease in homeownership but increase in rental demand.

On one hand, Nothaft reported an increase of 1.4 million households that have moved to rental properties in 2011, a 4 percent increase from 2010. On the other, though, homeownership rates fell 1.5 percent during the second quarter of 2011, and more specifically, rates fell by 4.4 percent for homeowners younger than 25 and by 7 percent for those aged 25 to 29 years.

In the report, Nothaft notes that the age-specific declines in homeownership explain why rental rates have increased as much as they have.

“While some of the tenure shift from owning to renting reflects financially stressed households (who may face short sales or foreclosure of homes they had owned),” Nothaft writes, “much of the rental demand is from young and newly formed households who have decided to postpone homeownership in favor of renting during unsettled economic times.”

As a result of this rush to rentals, vacancy rates for buildings with at least five dwellings have fallen to the lowest level in five years, according to the Census Bureau, and the Bureau of Labor Statistics has reported that rent prices have risen 1.4 percent in 2011.

Nothaft did mention one positive for housing, though, in the form of multifamily units.

“Multifamily construction had fallen with the collapse in housing starts over the last few years,” wrote Nothaft. “Indeed, completions of buildings with at least 20 apartments had shrunk in the second quarter of 2011 to the lowest level since early 1995.”

But now, with rentals the new hot property, construction for rental units with 20 or more dwellings for the second quarter was at its highest level in three years.

“The building pick-up – albeit still low – is in contrast to the continuing depressed level of construction for single family homes,” Nothaft wrote.