The economy of any entity, be it a college, a family or a city, is a complicated thing. So you can imagine how much more complicated it gets when you start to consider the economy of an entire country or even the whole planet. I’m not going to aim for an economics lesson here for a lot of reasons (mainly I’m totally unqualified) but there are a few tidbits, facts and predictions that are particular relevant to our customers, namely landlords who are renting property in the United States, about the current economy and its affects on the rental market in this country that you may find interesting and helpful. These are the tastes of information that I’m going to focus on because let’s face it, if I’d studied economics I probably wouldn’t be blogging right now. But I digress.
When the housing bubble first burst a few years ago, the entire country suffered its consequences in many ways. One of the truly devastating effects was the skyrocketing foreclosure rate among American homeowners. Putting aside the emotional nature of that particular economic event, let’s look at how that astronomical foreclosure rate affected the U.S. rental market. Some experts believed that it would have a generally positive effect on U.S. rental properties because the homeowners that were forced to leave their houses would find themselves new additions to the renter pool.
However, that actually did not end up being the case, as the Atlantic pointed out in 2009. Instead, many of those former homeowners ended up moving in with friends or family rather than entering the rental market. Conversely, those condos and homes that agents or banks were now unable to sell, did enter the rental market as rentable properties. Unfortunately for landlords, the housing market collapse actually had a negative effect on the rental market as well because there was more rentable property but no additional renters, which of course means that rents go down.
Today, slowly but surely, we find that the U.S. economy is improving, which is certainly great news all around as unemployment drops and different sectors recover at their own rates. Fortunately for property owners and landlords, this recovery is beginning to include the U.S. rental market. Indeed, real estate research site Zillow found that in January 2012, the median rental rates rose by 3% since that same time last year, which is certainly good news if you are a landlord with property to rent. Although during that same period, home values actually fell, experts expect that will not be a continuing trend. Instead, it may be an indication that this is a good time to invest in a rental property before home values begin to increase again, while the rental market recovers first. As the economy continues to grow more stable and robust, we can expect that rental rates will do the same.
This trend of rising rents and dropping home values has some analysts concerned that we are in the midst of a “rent bubble,” but as we look at the data further, that does not seem to be quite the right term. Of course, as you plan your rental property investments, you will want to keep in mind that there isn’t an upward trend that lasts forever. However, it is unlikely that the bottom will fall out of the rental market in exactly the same way it did for so many homeowners. As more first time landlords invest in homes at these low prices, the number of rental homes will increase which naturally means the rise of rents will slow. At some point, it is likely that these two trajectories, rents up and home values down, will reach some kind of equilibrium but how exactly that will shake out remains to be seen and is certainly worth keeping an eye on.
Still, it is important to not get lazy with your property ownership as the rental market improves. Instead, stay ahead of the curve by investing in or trying out new technologies like online rental applications and efficient background checks to make sure that you attracting the best tenants, no matter what the economy looks like.