Property Management Blog

Why the Rental Market is Growing

System - Thursday, March 17, 2016

It’s a good time to be in the residential rental business, and there are plenty of market indicators to back it up. A December 2015 report from Harvard’s Joint Center for Housing Studies has found that not only are rental rates the highest they’ve been since the 1960s, but renting is happening across a wide range of demographics.

For instance, younger Millennials may be delaying homeownership because of student loan debt, income levels, or lack of a down payment. But older people who have established careers and money in the bank may be opting for rent payments because they still feel the burn of the housing bubble.

The U.S. homeownership rate (63.8 percent) has dropped more than five points from its peak during the mid-2000s housing market explosion. According to the U.S. Census Bureau, the lowest homeownership rate is in the Western region of the country - 59 percent for fourth quarter 2015.

That means more renters for real estate investors. Not only that, rents are rising at a healthy clip, and in some places, so fast that it’s posing difficulties for people who chose to, or must, go the rental route. If rents are high, this could also be another factor in slowing the transition from rent to homeownership, since it slows savings.

Additional reasons for lower homeownership given by the Harvard’s Joint Center for Housing Studies report include an increase in immigration and lower incomes in service jobs.

While average folks have their reasons for staying on the sidelines, rising rental rates make it a tempting and lucrative business for investors, particularly those who can pay cash. In fact it’s part of an additional theory for why young people might not be in the market to buy.

Lowered-priced homes, presuming they fit other criteria, are ideal for turning a healthy rental profit. Those also happen to be the kind of homes young first-time buyers would be targeting. Since one in four homes are bought by investors, that’s the kind of competition that is difficult to match. To put this in perspective, according to the Wall Street Journal, only 17 percent of homes were bought by investors in 2000.

Where are rental rate going up the most? You have the usual suspects in the Bay Area, with San Francisco (14.9 percent) and San Jose (13.4 percent) holding the number one and two spots respectively. Portland is fifth on the list at 7.2 percent, more than twice the national average of 3.3 percent.

Are you looking for a place to rent that works for your budget? Or are you an investor who needs help managing your property? The experts at Zenith Properties NW have been in the Southwest Washington real estate market for more than 30 years. We can help!