Home prices expected to drop slightly in 2023, but there is another option…
The rental market may be impacted this year as housing affordability is expected to improve slightly in the new year, a rental expert told Mortgage Professional America (MPA).
“I think when we talk about the industry, obviously we always talk about the rental perspective,” Michael Lucarelli (pictured), CEO of RentSpree, told MPA. “But it’s almost impossible to have a nuanced discussion about the for rent industry without discussing the for-sale market as well and that’s really the whole of it because what’s happening in the for-sale industry is impacting what’s going on and vice versa.”
RentSpree bills itself as the industry’s premier end-to-end rental management software provider.
Interest rates affecting home purchases
“The main thing here is to look at the for-sale market as a starting point because a lot of people now are in no-man’s land, so to speak, as it pertains to purchasing a home,” Lucarell said. “What we saw during the pandemic, and even at the tail end of it, was that those really low interest rates crept up and now they’re over 7% roughly, depending on the area. That's creating a lot of barriers for people to purchase homes this year. That said, as we go forward, we will see the pendulum swinging a little bit more in favor of buyers as home prices are leveling out a bit. So, it will open things up a tad,” he said.
Rentals are in a downward trend pricewise
“It’s still not in any way shape or form going to, in my opinion, match what the affordability is for rentals,” he said. “Rentals are still unaffordable, but it’s almost like what is the least unaffordable of the two options. Both are tricky now; rentals are still high.”
Yet Lucarelli has seen studies pointing to rental relief. “We have seen some positive signs on the rental market in the fourth quarter,” he said. “In quarter four, rent price decreases were a 1% decrease on a nationwide basis for three months in a row, which is kind of uncommon. So, it’s still going to be in favor for renters in 2023.”
Despite the small decrease in home prices expected this year, rentals are still far more advantageous for many consumers, he noted: “Those improved conditions could be advantageous for renters,” he noted. “You will see a little more leverage for renters and buyers. Still, renting being probably the most attainable option for the majority of people, you will start to see more people maybe secure concessions, maybe some discount in rent or incentives that landlords might be providing. We’re going to start to see more of those things as we go through this year here.”
The company has benefited from the erosion in housing affordability. At the end of last year, for example, the firm partnered with the California Association of Realtors to create a set of rental-specific course curriculum designed specifically for real estate agents.
“It’s one of the very first of its kind courses that’s made available on a nationwide basis to teach agents and actually get a certification from doing this,” he said. “There’s a couple of different sessions to go through with quizzes and questions – everything like that – so that’s something that’s pretty big that we worked on.”
The firm also recently launched a CRM tool for agents on their platform designed to better manage their clients.
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“Even though rentals are big and they’re going to be big for this year and continue to grow, I want a lot of the real estate professionals to get into the habit when they are assisting a rental client or a landlord that this should be a client of yours for life because this renter is going to maybe rent another place in 12 months,” he said. “And this renter, who’s looking for a place to rent now, those are the people who are going to be a first-time homebuyer when the time is right for them.”
Lucarelli’s firm has long benefited from the erosion in home affordability. Since the Los Angeles-based company’s launch in 2016, RentSpree has experienced user growth surpassing 50% in the last year while helping 600,000 renters in their search to find their ideal home, company officials said.
