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.
Renters could be the key to improving the housing market. We discussed this previously with our fans. As rent goes up, housing will become more and more affordable. https://www.guaranteedrate.com/news/will-renters-save-the-housing-market.php
Call me cynical, but I don’t see the catalysts in place for that “inevitable” event of “when the market turns around”. Folks seem to be holding their breath – and their cash – waiting for that dubious announcement that the real estate industry is about to rocket upwards again.
Notwithstanding niche area growth, the market, by and large, has revealed its true stripes. This correction is now a reflection of pricing truth. No longer does gratuitous lending and fantastical speculative potential propel demand for home ownership. And this is how it should be.
As former owners are evacuated from their failed “American Dream” experiment of illicit ownership via foreclosure, they leave behind a wake of inventory. What’s more, they won’t be considered for a mortgage loan for about seven years after the derogatory reporting first hits their credit report. This leaves them with few options, and RENTING tops the list.
Soooo, heavy supply means lower prices for investors, while tight mortgage credit and hordes of individuals with scarred credit histories presents a strong host of renters.
It’s a good time to be a rental property owner – especially of the single-family residential variety!
Peace.
Vince
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Timing IS everything, and since the market is currently down, this is an optimal time to buy. I think we are very close to bottom and that prices aren’t going lower, so before the end of next year, we will see prices start to increase. No matter what state you are in, if you are a real estate investor you should be using this opportunity to build your portfolio.
Prices have soared ever since this article was written and the real estate market has changed dramatically however, the fact is that renter-ship is still growing – even in Canada. A good mortgage broker, a good real estate agent is all you need to make a successful investment in today’s current market.