Why Today’s Rental Market Is on the Rise

Rentals are becoming more popular amongst home buyersImpacts of the housing bust are still rippling through the real estate industry, but the large increase of single-family rental homes is one effect that will likely be sticking around. In fact, Freddie Mac reports that the single-family rental market, not to be confused with multifamily, has expanded 16 percent (almost 3 million units) since the beginning of the recession in 2007. This increase has brought the total homes occupied by renters to nearly 11 million, making it the fastest growing market in America!

Lessened job security, negative equity and large amounts of foreclosures have played a major role in influencing consumers to rent their home instead of buying it. Aside from economic factors, demographic trends like younger renters and their desire to live in more urban environments have also been a driving force behind the influx of rentals.

A survey of renters from the Opinion Research Corporation found that some 3.6 million homes were built for owner occupancy but are now serving as rentals because owners lost them through foreclosure. Furthermore, the Mortgage Bankers Association’s (MBA) National Delinquency survey found that the foreclosure rate has skyrocketed from around one percent in late 2005 to around 4.3 percent today. There are still more than a million homes in the national foreclosure inventory, many of which will be converted to rentals in the near future.

According to data from the 2012 U.S. Census and analyzed by the National Multifamily Housing Council, 32 percent of U.S. households are renter occupied, with 33 percent of renters living in single-family homes. This is probably why 34 percent of all traffic to Homes.com comes from users searching for rentals (single-family homes).

Who Are These Renters?

With huge student loan debts, a troubled job market and stricter mortgage requirements, it’s become clear that millennials are at the forefront of the uptick. In fact, 43 percent of all renters are just under the age of 30. The “twenty-somethings” aren’t the only ones pushing this rental trend, as 37 percent fall between the 30-44 year old bracket, 22 percent between 45-64 and 16 percent for 65 and up.

The National Association of REALTORS® predicts a strong demand for apartments to drive rentals up 4.6 percent this year, leading even more people to consider the benefits of renting a home. An analysis by the Premier Property Management Group, revealed that these single-family home residents are 24 percent more likely to remain in their current homes five years or longer, compared to just 22 percent of apartment dwellers, so it seems more stable than multifamily rentals.

Real estate professionals should recognize the financial opportunities of working with these renters, as studies show that half of all renters anticipate becoming homeowners in the next five years. Although selling a home will provide a better initial payout, the increasing number of renters can provide more consistent long term gains. From a competitive standpoint, it’s important to establish and maintain a long lasting relationship with renters because they have potential to turn into buyers down the road.

The Homes.com Local Market Index Report has indicated obvious signs of improvement in most local housing markets, but economic uncertainty and new mortgage regulations should keep the rental market thriving through 2014. Real estate professionals might want to rethink where rental properties lie on their priority list, as the demand for these properties have become pretty clear.

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