Increase in Demand Shifts Homebuyer Focus Toward Rental Investments

Housing supply low demand high


There have been a lot of discussions over the past few years about why millennials are choosing to rent, why homebuying has been out of reach for many, and how access to credit has been more difficult for potential first time homebuyers, something so pressing that the CFPB has looked into it. As the market has recovered for almost a decade from the financial crisis of 2008, all of these factors have combined to create a present market where demand for housing is high, but availability is low. This makes for a rental paradise, shifting housing investment focus to single-family rentals.

According to the National Association of Realtors (NAR), January saw pending home sales dip to their lowest level in a year due to limited inventory. The organization cited buyer traffic outpacing seller traffic in several metro areas, and said that in the West, it is not uncommon to see a home come off the market within only a month. Rents are increasing as a result of growing demand, which will eventually stabilize, maintaining low vacancies. While investors are always looking at market stability as an ongoing factor, it seems as though this current uptick in demand is natural, not artificial, and there's no readily apparent bottom that can fall out. NAR's Pending Home Sales Index has informed this understanding, showing that sales contract signings had decreased by 2.8 percent in January from December, even though interest in buying a home is currently the highest it's been since the Great Recession. Americans' financial situations are looking up, but there are housing supply shortages all over the place due to limited supply and rising home prices and mortgage rates.

The pool of available renters is always limited, and with high demand comes competition among builders and investors. As housing development continues, the supply will grow, pushing down rental rates, especially in rapidly developing areas such as Myrtle Beach, which saw a 94% increase in availability after building 3,100 homes in 2015. Even with a 2.6% decline in new home building in January of 2017, new home construction has increased 10.5% over the last year. Reports from economists indicate that higher mortgage rates are not yet dragging down the housing market. One promising sign of relief is that building permits, which are a good gauge for future homebuilding, rose 4.6% in the last month. As construction picks up to meet demand, prices will normalize once again.