The past few years have been painful for the housing market; however, with the recent upswing in the economy the market has rebounded a bit.
This is fantastic news for those who are determined to own their own place. However, for many people this sudden rise in interest will price them out of the market. This would normally put a strain on rental property as the demand has begun to aggressively chase supply.
Rental markets have risen 19% over the last year and despite a dip in quarterly growth, monthly median rent growth is picking up with steady year-over-year growth.
This is regardless of lower incomes being reported in the first quarter also in spite of a decrease in home affordability. In this case landlords are limited in how much they can increase the rent, because of the lower incomes, but they are not suffering as demand makes up for the difference.
It’s a landlord’s market as long as inventory fits what renters are looking for. The second quarter is projected to see a slowing of the rental market as the new multi-family units are absorbed into the market. Gen-Yers are entering into the rental market too, but low income for this segment of the market may result in landlords being unable to raise the rent in many places.
Rising mortgage rates and high home prices are also factors that are forcing some people into the rental market. Average home affordability goes down as mortgage and home prices rise, kicking would-be home buyers out of the housing market. In many niche markets rent prices were down 1.2% over the last quarter, but they were up 16% from the previous year.
These numbers make 2014 a potentially lucrative year for property managers and rental owners. Many of these niche markets are in big cities, places traditionally open to growth. However, the influx of the 80 million strong Gen-Y populations is skewed towards these larger markets. This is logical considering the proximity to job growth and wealth development available in the future.
The prospective talent pool of metropolitan areas assures that construction will continue in these markets until demand can be met.
However, 2014 is not looking so bright for New York and Boston who won’t see the aggressive rent growth they have experienced over the last couple of years. These areas are saturated with prospective renters and the demand is still exceeding the supply. It’s going to take a little time for these markets to even out and reach the potential that is projected for the rest of the country. The housing market is still normalizing, showing strong growth in all but three of the 35 largest markets showing annual appreciation. Home prices will continue to rise at a slow, but steady pace. In the meantime, we should assume that rental prices will do the same over the coming months.