Will a Stronger Housing Market Hurt Rentals?

By E-Renter Tenant Screening
Posted on December 11, 2012 under Rental Market | Be the First to Comment

The tighter credit standards and falling housing prices that followed the housing bubble’s burst led many Americans to become renters, rather than homeowners. Now the economy is getting stronger, and new households are again forming. But increasingly, young Americans and those burned by foreclosure are opting to rent rather than buy.

Yes, much of the U.S. is in a rental market boom. But in the face of a strengthening housing market, will that trend be continuing? And if rents and demand keep rising, but supply doesn’t keep up, will the pendulum swing back toward home ownership?

Analysts expect that a lack of financing as well as the supply of homes for sale will keep the rental market strong, at least in the short term. However, if rents keep going up and home prices stay relatively stable, your tenants could start checking to see if the grass is greener on the home ownership side of the street.

We are in an uncertain point of the economic recovery. Unemployment is dropping, but it is still above 7.5%. Forty percent of the unemployed have been out of work for six months or more. People don’t buy houses when they’re uncertain about their futures.

Younger people were hit hard by the economic and housing market crash, and baby boomers are retiring in huge numbers. Both of these big demographic groups could keep rental markets strong for years to come.

But once we either avoid or fall over the so-called fiscal cliff, some uncertainty will be abated—for better or worse. And what will happen if lawmakers actually start crafting policy to create jobs? Will a more concrete feel for the future embolden renters to become homeowners again?

If rents keep increasing, home ownership will look better and better—especially as wages stagnate. Many people will simply be unable to afford rising rents and will look for alternatives. Even those stung by foreclosures could buy again, especially when FHA loans become available to them again, three years after their proceedings.

Landlords and property managers, it’s clear that staying on top of what’s happening in your local market is the key to staying ahead of the competition. Adjust your rents and target your tenants accordingly.