The new housing rebound is causing some big shifts in the U.S. rental market that aren’t making it into the news. Subsequently, the majority of individuals are unaware of what is actually taking place. So how is the recovery really impacting rental housing, and what does it mean for real estate investors?
The rebound has been steadily lifting home values across the United States. Some areas still have quite a way to go to make it to the next level. Others are reportedly returning to their previous highs and preparing to spring even higher. Perhaps the most significant impact of the home value climb is the volume of property owners finally able to sell without coming out of pocket, and for many others being able to finally pocket significant proceeds by selling. Of course, this doesn’t apply to everyone. Many are still underwater and need short sale help or other creative solutions to enable them to get out from under the burden and move. However, this new era of home equity and confidence is spurring many property owners to list their holdings for sale. Many of these new listings are currently being leased as rental homes. In many cases, owners are being filled with over-confidence from the news or local real estate agents hungry for listings and willing to promise the moon to get them.
While there are still many distressed properties and cheap foreclosure bargains out there, these listings are contrasted by being listed at the top of the market – some even at prices far higher than most would think rational. Some are being priced for tear down and rebuild, even though there are vacant lots next door. Others are being listed so high that they only make sense for cash buyers, and barely even then.
Of course this doesn’t mean they will sell, or sell quickly. In many cases, over pricing is counterproductive and will actually cost more. Sellers might find it faster and easier to ask their tenants if they are interested in buying, as higher sales prices are causing rents to rise. Landlords want tenants out so that they can raise rents and make properties appear more valuable, and new owners often have lofty ideas about what they can ask in rent.
While national forecasts and estimates of rent increases may have been in the 7% range, they are going up by healthy double digits in many areas. This has many tenants in the air. Even if it is just about the principle, most aren’t going to stomach high double digit increases in their month rent. Many would rather move and get more for their money elsewhere, some will look to find something cheaper.
Many renters are now better off financially than they have been in years. Others are ‘new money’ and are ready to splurge. Many are not ready and haven’t gotten back on their feet. Their incomes may be up and steady, but they are a long way off from having saved up first, last and security, passing rigorous credit checks and having enough money to move their belongings. This doesn’t make them any less great tenants though. Both types need to be served, and some will be more loyal than others out of appreciation.
This situation is creating many opportunities for real estate investors to both earn a good living and provide an invaluable service to individuals and families. Those that are most successful will be those that recognize what types of housing and services tenants want and need the most and position their rental units and brand to serve them best.
