When the real estate bubble of 2008 broke, housing prices experienced one of the largest drops in American history. After the initial shock, the millions of foreclosures, and a roller coaster ride of a recovery, housing has emerged once again as a booming market for consumers and investors. The distressed home market (houses that were foreclosed) represented a huge opportunity for a strong rental home market to emerge. Since 2008, investors have converted nearly $10 billion worth of foreclosed houses into rental homes. While this only represents a fraction of the homes foreclosed after 2008, it still has huge implications for the rental market nationwide.
The Rental Market Today
Apartments are the top choice for renting, representing 73% of the industry. Even with the housing market improving and unemployment falling, renting is far outpacing home purchasing by more than 3 times in some areas. In fact, increased hiring from Seattle giants like Microsoft, Boeing, and Amazon have only pushed local apartment rentals higher. Seattle is ranked 7th nationally for the number of apartments constructed in 2013, nearly doubling production from 2012. Needless to say, Seattle apartment vacancies have fallen drastically over the last year, and increasing demand has pushed the price of renting to well over $2 per square foot. Some analysts have recommended buying or renting a house due to the increased competition and prices in the apartment sector.
While apartments retain their position as the top choice for renters, single family home renters have become the fastest growing consumer group in the housing market. The Federal Reserve Bank of Dallas reported that, in the last 5 years, 4.2 million new home renters emerged, while the number of homeowners grew by only 1.2 million. Additionally, housing renters indicate a higher level of customer satisfaction than apartment renters, and are far more likely to stay over the long term. Surprisingly, affordability is not the biggest factor in the renting-buying decision. In a survey from Premier Property Management Group, 42% of single family home renters indicated that the reason they don’t buy is because they enjoy renting, while only 29% said they couldn’t afford a mortgage.
Renting Down the Road
The rental market is likely to remain strong for the next few years firstly due to the number of post 2008 foreclosures. Possibly the biggest contributor to growth in the rental market will be the next generation of households. Moody’s Anlaytics shows that 65% of households headed by 20-29 year olds are renters. The renting rate for persons under 24 years old is 77% overall. It is possible that, as younger households emerge, renting will become even more popular. Another good sign in the rental market is the balance of supply and demand. Producing new units ensures that vacancies won’t fall too low and push renting prices up. In Seattle, apartment production is expected to rise by nearly a third over the next few years.
The expansion of the rental market is good news for landlords and tenants alike. The rental market is likely to become far more competitive and tense in the near future. If you’re a landlord trying to navigate the rental market, a property management company can help you. Located right here in Seattle, North Pacific Property Management is dedicated to helping your rental home or apartment reach its full potential. Contact us today for more information!