The Cooling of the Red-Hot Rental Market

by 28 Aug 2012

(TheNicheReport) -- The American housing economy has tried to regain its footing over the last few years, and a mini-bubble emerged in the meantime. During the whirlwind days of the housing craze, the usually stable rental market managed to lose some ground. In the post housing collapse days, however, rental contracts soared and real estate investors paid attention. 

The rental market is still booming, at least in key metropolitan regions of the country where job hunters are more likely to find employment. Monthly rents are up and finding a nice place for rent is getting difficult in some areas. There is a high demand for dwellings that are traditionally associated with renters, such as apartment buildings and multifamily residences. Even with all these growth factors, there is a potential for the rental market to enter a cooling-off period.

The View from the Investment Side

The Real Estate Investment Trusts (REITs) that focus on multifamily housing have been enjoying the rental boom. According to an analyst recently interviewed by CNBC, investors are happy but also cautious. They have learned the harsh lessons imparted by the bursting of the housing bubble, and they are now looking at commercial property and single-family housing REITs. 

Investors are employing a stronger rationale than they did in the early 21st century. Monthly rates can only go so high, and if the purchase price of rental properties climbs out of control, investors will simply look at other opportunities. Any further growth of the rental market will be measured. 

The Urbanization of Americans 

The suburbs were once the breeding grounds of the American Dream, but 21st century families in the United States are finding that living in apartments close to metropolitan areas is not so bad after all. Recent studies into the driving habits of young Americans have revealed that many are not interested in getting their driving licenses, opting instead for carpooling, public transportation and low-cost alternatives for getting around. 

Whereas in recent years American families predominantly chose to live in single-family residences, some estimates indicate that a quarter of the U.S. population might be living in apartments by the end of this decade. Young families are not the only ones moving to multifamily units; seniors have been flocking to condominiums since the 1970s.

No Bubble or Crash in Sight

The accelerated growth of the rental market may be coming to an end, but a sudden crash is not expected. With so many former homeowners choosing to rent, many empty single-family homes are bound to attract investors who may see the true bottom of the housing economy happening now. Even with increased real estate activity, investors are not likely to repeat the same mistakes of recent years.



Is TILA-RESPA a good or bad thing long term?