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The new year ignites a spirit of change across the board, and the real estate industry is no exception. As we head deeper into another decade, there seems to be an abundance of advice for buyers and sellers, but what can investors, landlords and property managers expect from the year ahead?
The overwhelming consensus for the market is that low unemployment rates paired with low mortgage rates will keep the housing market afloat, but finding inventory may prove to be difficult.
Investors, landlords and property managers need to be well aware of certain trends and predictions to best equip themselves for success this year. Investing can be a tricky business because the market fluctuates so frequently. Buy low and sell high is the basic advice, but knowing which market is going to boom next takes knowledge and expertise. Thankfully, there are some key indicators to pay attention to that can give you an idea of which way the market will swing.
Rising home prices will drive rental rates.
The state of the economy is a huge driving factor in making market predictions for investors. Home prices are outpacing wages in the majority of markets across the country, and an estimated 71% of Americans cannot afford to purchase a home. With home ownership out of reach for so many, rental rates are increasing rapidly compared to home purchase rates. Many individuals simply can’t afford to purchase a home of their own, or are further delaying this step until they are able to increase their income.
It’s likely that renters — especially younger tenants — will be resigning leases or staying in the rental market for the next couple of years (unless a flood of entry-level homes hit the market; see below). Investors should focus on family-friendly properties and markets that appeal to young renters who aren’t quite ready to purchase their first home.
Don’t forget about Millenials.
While Gen Z is becoming an increasingly important demographic in the rental market, the Millennial generation shouldn’t be ignored. Millennials are now between the ages of 24 and 39 and are starting to purchase their first homes, but high home prices may cause a delay here.
Both Millenials and Gen Z have behaviors and lifestyles that are quite different from previous generations. Technology, sustainability, community and amenities are all increasingly important in a competitive rental market. Millennials generally look for rental properties that are close to their jobs, shopping and entertainment, so city centers and close-by suburbs will see a continued spike in investment. Investors should do more research on the changing rental demographics and use this information to evaluate markets for long-term growth potential.
Rent control will continue to spread.
While only four states in the U.S. currently have active rent-control laws, experts predict that more high-cost housing markets will follow suit in 2020. Widespread rent control could have a dramatic impact on the investment market: One study shows that 58% of multifamily investors operate in jurisdictions that have already imposed or are considering imposing rent control. As a result, 34% of those investors said they had already cut back on their investments, and 49% were considering cutting back moving forward. As an investor myself, I am opposed to rent control due to the fact that when any governing body steps in to influence rental rates, it artificially creates a vacuum in one direction or the other rather than letting supply and demand take its natural course.
Construction rates will stay high with a focus on entry-level homes.
This trend can mean one of two things. First, with an entry-level, affordable product, renters may decide to buy if the stars align with low home prices and fair mortgage rates. Second, the lower-priced homes will be attractive to investors who would like more rental properties in their portfolio. In either case, it could spell a softening of the rental market. If renters are leaving the potential tenant pool and becoming home owners, or if more potential rental homes are coming into play, overall demand will decrease. In particularly fast-growing regions, however, a rapid construction rate may be just barely enough to keep up with burgeoning demand, spelling little to no impact on the rental marketplace.
Trends and predictions can give you an idea of the future of the real estate market, but unfortunately, they don’t always guarantee the future. Understanding major movements in the market and using that knowledge to the best of your ability will set you up for success. Informed decisions and past experiences will help to point you in the right direction.