More Renters Expect to Remain in the Rental Pool
A recent Freddie Mac survey has more renters saying they have no interest in buying homes. The report states 66 percent of renters plan to plan to remain in their current situation for financial reasons, up from 59 percent two years ago. Much of this movement is driven by rising home prices, which has made home more unaffordable for many. While the Case Shiller National Home price index rose 6.2 percent year over year in January, rents have only increased 3.9 percent. This makes renting a more viable option, particularly with younger renters. Millennials are forming their own households later and lagging behind in homeownership rates compared to previous generations. Interestingly, this phenomenon is not restricted to the US. Even countries like the United Kingdom, which have traditionally been strong homeownership markets are now tilting towards renting. Real estate investors and developers from the US are jumping in to build rental housing in major cities to meet this trend.
Homeownership Headwinds and the Opportunity Real Estate Investment Presents
The other headwind is rising interest rates, which have made payments unaffordable in areas where entry level home prices are higher. The Mortgage Bankers Association reports that mortgage applications declined by 3.3% last week. Most people who invest have their wealth tied up in the stock market and its current volatility has many potential home buyers nervous. This gyrating net-worth cause for “nest-egg uncertainty.” Coupled with historically low inventory and extreme competition for homes in many areas, and you have renting as the new normal for a significant portion of the population.
Many workers are not seeing great wage growth because it has been concentrated among the higher earners and select industries. Most renters are loath to take their hard-earned savings and put it into a mortgage if they feel any uncertainty about their current and future earnings. This presents a unique opportunity for investors who want to diversify from the stock market. Renters are the cash flow engine of residential real estate investment. More renters equate to more stability and better returns for real estate investors. This thesis is supported by current occupancy rates in single-family and multifamily rentals, where rates are hovering in the mid-nineties. The current job market has historically low unemployment rates even when you consider underemployed workers or those that have been on the sidelines. More people are working and forming households so there is a greater demand for shelter but not for home buying.
Residential investors can use HomeUnion’s Big Data real estate investment platform to select properties based upon their financial preferences. They can decide on the size of investment, their risk tolerance, and what balance of yield and appreciation meets their goals. The HomeUnion recommendation engine automatically creates curated portfolios for them to analyze and bid upon based on their financial criteria. Investors don’t need to be limited to high-priced homes
on the coasts, where they are investing primarily for appreciation and seeing very limited cash flow. The good news is that there are many markets with low unemployment and investment homes with attractive rent-to-price ratios. Markets including Atlanta, Charlotte, Raleigh and Austin, which have traditionally provided good yields are also appreciating well, giving investors the best of both worlds.
Wealth and high-cost housing markets are concentrated on the coasts. Real Estate investors in these markets are finding that investment properties are becoming more expensive. Since most of them already own homes in those markets, a second property does not truly diversify them from adverse changes in their local market. In the Bay Area, for instance, there are reports of properties being bought at $500,000 above asking price. The financial prudence is to invest in the best real estate investment property, regardless of location. Take advantage of the move towards renting by letting companies like HomeUnion do the heavy lifting for your residential real estate investments in remote locations.