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Rental Market Trends Every Real Estate Investor Needs to Know


rental-trends-every-real-estate-investor-should-know-bodyMany things impact the housing market including interest rates, employment rates, and the overall state of the economy. The unemployment rate in the U.S. is currently sitting at a 49-year low of 3.6%, as of May 20191, with Vermont boasting the lowest unemployment rate of 2.1%.

In general, the U.S. economy is healthy. In June 2009, the economy began to rebound from the Great Recession, and we’re currently in the longest expansion on record. With a strong economy and low-interest rates, consumer confidence can lead to a flood of interested homebuyers. According to Forbes, 2019 household budgets are very robust. Thanks to a strong labor market, the average household income is rising, people are saving more, and average incomes are outpacing consumer debts. The healthy, broader economic environment has helped support real estate investment in the last few years, and this trend is also expected to hold steady or rise.

Home sales and prices

The Survey of Consumer Expectations (SCE) looks at expectations for the change in home prices on both one- and five-year timelines. According to the survey, the anticipated average home price change fell slightly on both counts, compared to last year’s survey. The National Association of Realtors5 is expecting the median home price to increase by about 3% in 2019. They also expect home sales to increase 1% year-over-year. According to Opendoor’s analysis of the current housing market, home prices and sales are still rising overall, but the rate of growth in these areas has declined over the past couple of years since peaking in 2017. Experts expect that 2019 will see a continuation of this trend. In recent years, most houses that went on the market sold very quickly—often at or above the listing price. This year, and moving into 2020, the markets are shifting a bit to be more favorable to buyers. However, homebuyers shouldn’t get too excited. There is still a significant inventory shortage that gives sellers and cash buyers more negotiating power.

Mortgage rates

Consumers expect mortgage rates to continue to rise in 2019. According to the SCE, households perceive that mortgage rates have risen by about 40 basis points since last year, which is consistent with the change in rates through December of last year. That being said, Freddie Mac has decreased its interest rate forecast for 2019–2020 by nearly 1%.

Rental trends

When the housing market favors sellers and it becomes challenging for first-time homebuyers to contend with above-average home prices and cash buyers, they’re forced into rental properties. And, although rent prices are on the rise, according to ManageCasa,8 inventory is healthy, leaving the rental market a solid investment option for property investors. For the first time in history, in 2018, the number of renters outpaced the number of homeowners. There are a number of contributing factors in the growing demand for rental properties including:

  • Generational preferences

  • Lack of single-family detached housing inventory

  • Affordability of renting

This, of course, is not an exhaustive list, as there are many things that can impact the state of the rental market. For investors, keeping a pulse on your city’s investments in business, housing inventory, household income, median age, and construction can provide insight into whether or not it’s a good time to deepen your property investment portfolio. While the majority of the country is experiencing rent that falls below the national average, the average rent hit $1,442 in May 2019, according to RENTCafe.

The great demographic shift

Interestingly, the basic demographic of renters has shifted to an increase in Baby Boomers. Renters over the age of 55 grew by 28% since 2009, according to Census Bureau data10. Likewise, renters with a bachelor's degree or higher increased by 23%, and families with no children increased by 21%. Based on these figures, we could deduce that Baby Boomers are downsizing as they shift to become empty nesters, looking for lower maintenance property options. Meanwhile, educated singles may be putting off homeownership as they build their careers or relocate to urban and metro areas that offer walkable neighborhoods and attractions.

What this means for property investors

As a real estate investor focused on growing your residential portfolio and bottom line, it is critical to understand the contributing factors driving the real estate market. These may be demographic shifts, the rise and fall of mortgage interest rates, the state of the economy, or a number of other things. With the demographic shift and subsequent rise of renters this year, real estate investors could see some large returns on their portfolios for quite some time.

Whether you already own and manage a pool of real estate properties, are thinking about expanding your portfolio, or you’re just getting started on your real estate investing journey, it’s important to stay abreast of current market trends and have a pulse on the best places to invest. You can protect your real estate portfolio by ensuring that you have the proper insurance coverage in place. When you partner with SWBC Insurance Services, you receive nearly 30 years of real estate investment experience from experts dedicated to finding the most appropriate and cost-effective tailored coverage from A-rated carriers. Our team will help you achieve the success you deserve when it comes to your real estate investments.

Visit our website to learn how we can help you protect your real estate portfolio.

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