As homeownership rates decrease, demand for rentals rise

As homeownership rates decrease, demand for rentals rise

September saw a surge in demand for single-family rental homes as vacancy rates for rentals decreased to its lowest level in 14 years, according to Freddie Mac’s latest U.S. Economic and Housing Market Outlook. Homeownership rates have decreased across the country to 35.9 percent, down from 43.6 percent in the past decade. With declining homeownership due to a lower supply of affordable homes, the trends in the real estate market have pushed toward higher rental rates, especially for younger Americans.

“The apartment market has been vibrant, reflecting the desire of many millennials to live in an urban setting and retain locational flexibility,” said Frank Nothaft, vice president and chief economist for Freddie Mac, regarding the report. “Unfortunately, if they’re looking to live in the larger cities, that’s where rents are rising the fastest, especially in the West or Northeast regions of the United States, places like Los Angeles and New York City.”

While these metropolitan areas have seen higher rates, many millennials are also looking into more affordable areas and neighborhoods, including more suburban areas in the Midwest. Nothaft said locations in the Midwest are still at or lower than the average in the U.S. The only exception is the Chicago metro area, which is still considered more affordable than L.A. or New York City. With rental rates in the Midwest increasing, real estate investors could look into acquiring Minneapolis investment properties or other rentals in fast-growing areas to meet demand for rentals.

Trulia sees higher growth in rental market

Major players in the real estate industry realize the potential for growth in the rental market, with Trulia encouraging more spending on investment properties, Sean Aggarwal, chief financial officer of Trulia and member of the CNBC Global CFO Council, wrote on CNBC. According to Trulia’s CFO, the U.S. has an estimated 100 million renters. Not only is the size of the rental pool huge, consumers are also likely to be in demand for rental properties because they move an average of every 18 months.

In attracting tenants to rentals, landlords will have to appeal to consumers through attractive photos and other consumer-driven features.

“I encourage you, as an investor, to spend time digging deeper into the rentals market to explore what I view as a significant long-term opportunity,” said Aggarwal on CNBC.

While some companies are building their business models and getting more people to rent by providing mobile services to consumers, investors need to determine whether these apps are enough to find the right tenants for them.

Ready to learn more? Schedule a call