Property investors and real estate professionals often see the terms “renter’s market” and “buyer’s market” used to describe trends that indicate consumer demand for renting or for buying. Recently, we’ve seen that many major cities meet the definition of a renter’s market due to rising housing costs, younger populations and high population growth rates as main factors.
As of April 2019, the average single-family home price in the U.S. was just under $227,000, up more than 5% from the same time last year. This is a continuation of substantial growth in the years since housing prices dropped to a low of $148,000 in early 2012. Coupled with rising housing costs, interest rates have slowly but surely trended upward as well. The average monthly mortgage payment also is expected to continue rising, resulting in renting being the more cost-efficient choice for some households.
Regional Demand Stays Hot For Summer
There is a sustained national trend of millennial young professionals in their twenties and thirties moving into urban centers, as is the case here in my home market of Houston. Housing prices tend to be less affordable in the city than in the suburbs, further incentivizing recent college graduates and young professionals to consider renting in the city.
The renter’s market can also be attributed to population growth in urban areas, especially population centers in southern states from Texas to Florida. Renters are seeking the economic promise of these cities, not to mention the warmer temperatures expected of the Gulf Coast.
The growth potential of these cities doesn’t show any indication of slowing down anytime soon, and the demand for housing within these cities is expected to heavily outweigh the supply. This mix of indicators presents a prime opportunity for real estate investors to pursue investment opportunities in these cities.
Why This Is Good News
One key advantage to the renter’s market for investors and property managers to consider is the stability of residents within properties. With renting expected to outpace homebuying, residents are more likely to opt for long-term lease agreements. That is good news for property managers, as it minimizes the allocation of operational resources with regard to processing applications and background checks on prospective residents to fill vacant units. When residents choose to renew or extend their existing lease agreements, it not only results in higher occupancy rates but a more profitable and consistent net operating income.
Diligent Research Pays Off
Trends nationwide are repeatedly showing that the U.S. is becoming increasingly urbanized as more people live in metropolitan areas than ever before. The United States Census estimated in 2015 that 62.7% of Americans live in cities. That said, it is important to remain diligent when it comes to maximizing investment opportunities in one major metropolis versus another (e.g., Houston versus Detroit).
Further, it is just as important to actively research which neighborhoods of major growing cities are most in-demand for multifamily housing, which will also help maximize the return on investment. These neighborhood trends can easily be kept up with by reading the local news or subscribing to market research reports.
With national trends pointing to renting as the best and preferred choice for many households, it’s important to take control of the available data to maximize return on investment. As more young professionals flock to urban areas, the demand for multifamily housing will only continue to grow, showing the importance of due diligence when identifying multifamily investment opportunities.