It used to be that home-ownership was a part of the American dream. Home-buyers would scour for properties that suit their needs whether it was for their growing family or for a second home. But the global economic slump that has plagued the real estate market has created a major shift on the housing landscape.
Oliver Chang, Head of U.S. Housing Strategy at Morgan Stanley, recently explained the reason behind this new housing landscape. He opines, “One of the big reasons why we believe the rate of home-ownership is going to decline and more people are going to rent is that it’s just getting harder and harder to get a mortgage and so as people are not able to buy homes, they’re basically forced to rent and we see that continuing.”
As an alternative, buyers have shifted their demand to rental properties instead. According to the National Association of Realtors (NAR) Chief Economist Lawrence Yun, the pace of increase in monthly rents has sustained its strength in almost half a year from 3.0 percent in July 2011 to 4.8 percent in November 2011.
Chang also adds that single-family homes will be the key drivers in the growth of rental properties. “Overall we like the rental part of the market much better than the owner-occupied side. And for single-family rentals, this is really the first time in history where there’s an opportunity for institutions to own single-family properties as part of a larger asset allocation strategy… people who are looking for single-family homes today are really the families who have lived in suburbs, they care about school district, they care about other issues and they’re looking to stay in the same type of house, and so we see that demand really staying within the single-family sector just moving from the owner-occupied side to the rental side,” he said.
Here’s the full interview with Oliver Chang by CNBC:
Given the drop in home prices and the rise in rental demand, this is indeed a great opportunity for real estate investing. The general economic climate may be gloomy but savvy real estate investors are aware that huge gains are waiting for those who strike while the iron is hot by taking advantage of bargain prices and offering investment homes at a higher rent. There’s no doubt that you’ll have healthy cash flow every month.
Experts predict that this trend isn’t going to change anytime soon. Yun forecasts that the 12-month rent increase will move even higher in 2012. Supporting this claim, Morgan Stanley’s report, Housing 2.0: The New Rental Paradigm, cites the decline in home-ownership, availability of single-family housing, projected liquidations and increasing capital investment in single-family properties as the main factors behind a sustained shift in the coming year. The firm is also eager to know how the proposed plan by the government of turning distressed properties into rental homes will bring foreclosure rates down.
There’s a goldmine found in real estate investments and as experts say, “timing is everything” so I urge you not to wait until the real estate cycle start turning again.
