For landlords feeling the pressure of high interest rates or potential investors wondering how to make it happen cash flow, have Some good news: Rents will continue to rise. However, for rent-burdened tenants, the outlook is Not too optimistic.
“We’re going to build 600,000 apartments this year,” Barry Sternlicht, CEO Starwood CapitalAn investment firm specializing in hotels and market-rate multifamily housing recently said CNBC Regarding apartment construction in the United States, “400,000 units will be built the year after that, and 230,000 units will be built the year after that.”
Why is he so optimistic about real estate?
“This is my problem [Jerome] Powell,” Sternlicht said of the Fed chairman. “His policies have crushed the housing market. There are only 220,000 homes in 2026, and I guarantee you rents are going to go up in 2026.
The high interest rates Sternlicht mentioned, instigated by the Federal Reserve, have locked in rates for homeowners, resulting in a stagnant housing market with little inventory and rising home prices. According to a recent bank interest rate researchIn the United States, the average annual cost of owning and maintaining a single-family home is more than $18,000, 26% higher than four years ago. This figure does not include mortgage payments but does include hidden costs such as closing costs, insurance (Interest rates have been soaring), maintenance, energy, internet, cable TV bills and adjusted property tax figures.
Nationally, the monthly payment is $1,510 on top of the mortgage. according to Zillo, this The current average rent in the United States is $2,208 For single family homes. Therefore, renting an apartment is undoubtedly cheaper than renting a house, and this will continue to be the case for the foreseeable future, even with interest rates falling.
As a result, demand for apartments is at an all-time high. However, due to interest rates, inventory is insufficient——As Sternlicht said——Adding to the demand for more apartments.
Rents are rising faster than wages
Recent data backs up Sternlicht’s claims. according to a recent analysis From an online brokerage company Data from Zillow and StreetEasy show that rents nationwide increased by 30.4% between 2019 and 2023, while wages increased by 30.4% during the same period up 20.2%. Much of the disparity between wages and rents occurs in large cities in the Sun Belt such as Atlanta, Charlotte, Miami, Phoenix and Tampa.
While rents have declined in some metropolitan areas, such as Austin, Texas, and Portland, Oregon, as more apartments come on the market, for densely populated cities like New York, demand for accommodations has The inability to satisfy has led to rents reaching unprecedented levels.
“In New York City, the construction industry simply cannot keep up with demand,” said StreetEasy senior economist Kenny Lee. The report said.
More permanent tenants
With hundreds of thousands of rental units popping up in the Sun Belt market due to changing job and demographic markets, tenants have a better chance of closing a deal than elsewhere. Commercial real estate data and research firm Yardi Matrix predicts 1.3 million units arrive Finish In 2024 and 2025, it will bottom out in 2026 and reach the level no It has been around since the 1970s.
Many of these rentals are fully furnished luxury buildings populated by higher-income tenants who want the flexibility to move on short notice and not be tied down by a mortgage. They upended the idea of homeownership, once a dream for aspiring, high-income Americans.
“The most important part of this story is real “Millennials have reached an age and income level where, in previous generations, they would have moved to the suburbs and bought homes, but they didn’t,” said Michael Pestronk, a Philadelphia developer and CEO of Post Brothers. Fox KTVU.
Huge rental discounts on luxury apartments
Sternlicht on rent increases Not the same Covers all rental industries. Where most landlords operate – the sweet spot for average rents – will undoubtedly increase.
However, luxury rental rents for fully furnished apartments or large single-family homes have declined. That’s according to a report published earlier this year by Harvard University’s Joint Center for Housing Studies and cited by The New York Times wall street journalThe share of American renters who spend at least 30% of their income on rent has been rising over the past two decades. This proportion now accounts for half of the rental population.
However, rents for high-end homes in Austin, for example, have dropped significantly. “Everybody comes here to build,” said Austin agent Carly Guimaraes. “Now that supply is about to materialize, it was created There is a glut in the luxury goods market.
The result is landlords offering unprecedented discounts to tenants, such as two months of free rent on upscale Sunbelt rentals.
Gains for small investors
so, What Can small investors take advantage of this information? Here are some points to consider.
looking towards the suburbs
Compete with modern apartment buildings and their amenities in affluent Sun Belt markets is extremely difficult. However, tenants pay a premium for these places, and smaller apartment complexes or single-family homes can attract tenants by staying below their price point.
Most U.S. rental units be owned Made up of husband and wife investors who own some properties. according to huduser.govAs of August 2022, single-family rental properties in small investors’ portfolios accounted for 80% of investor-owned homes nationwide. This means that demand for rentals remains high in quiet suburbs without high-end apartment complexes, where working-class and middle-class families generally live.
Midwest offers opportunities
The lack of buildable space is also affecting rental demand in other locations away from the Sun Belt, in and around the city.
as Michael Pestronk explained to Fox KTVU: “The biggest problem is the lack of product, especially in large mature metropolitan areas. There is no such thing as a large starter home.” [Metropolitan Statistical Areas] Not anymore. There is no land available for housing within commuting distance of work.
It’s always a good option for small landlords to buy somewhere a little further from a major city commute, where prices are lower but tenants can still earn high wages. according to rental coffee networksome of the nation’s hottest rental markets remain in Midwestern suburbs, such as the Chicago suburbs, including popular areas such as Naperville, Crystal Lake, Joliet, Schaumburg, and Elgin, Illinois, as well as Hammond, Munster and Gary are in Indiana.
College towns are still a good choice
The demand for university accommodation has never been greater. A typical example is Fayetteville, Arkansas,in University of Arkansas Enrollment record broken for third consecutive year continuous, with more than 32,000 students enrolled in the fall 2023 semester. Lease for college years instead of moving out.
final thoughts
Supply and demand remain the fundamental factors determining the U.S. rental market. Hundreds of thousands of new apartments have hit the market in the Sunbelt and soften Require. However, chronic undersupply persists, especially among more affordable suburban single-family homes.
Buying at high interest rates remains a huge challenge for investors large and small. However, small investors shouldn’t be put off by news that hedge funds are buying single-family homes or developers are building skyscrapers with amenities. Being flexible and grounded will give you an advantage. There are still some deals available, as long as you’re creative enough to find them.
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