- Impact of home seller’s market on rentals good for landlords/owners
- Home affordability motivates renters to stay put
The Higher Residential Prices Go, The Lower Vacancy Rates for Rentals Fall
As low for-sale inventory and high demand continue to dominate, realtor.com’s latest national forecast study predicts that existing home sales will increase +7% y/y in 2021.
Such a price prediction is great news for sellers…not so great for potential homebuyers, many of whom are renters.
Just remember that the median sales price nationwide has jumped +16.9% y/y and is far outpacing average wages by four times.
Brief & Recent History of Affordability
According to the National Association of Home Builders (NAHB), 63.1% of homes currently sold in the US have been considered affordable.
A decade ago, 78.8% of homes sold were considered affordable.
Translation: Rental Renewals More Appealing
Currently, the rent-to-income ratio stands at 0.34. The sales price-to-income ratio stands at 0.22. Supposedly, if thinking about affordability issues, more renters should be moving into homes.
BUT, vacancy rates have increased only 0.8% from 2020 when pandemic lockdowns became our reality.
Currently, the vacancy rate stands at 6.8% and the median rental rate has risen just +1.1% y/y.
There’s no secret to understanding why rental renewals are becoming more attractive. Just compare the +1.1% increase in the median rental rate and the +16.9% increase in the median sales price.
What Can Investors Expect and/or Prepare for?
Expect renewal requests from your current tenants.
Be ready with a formal lease renewal offer.
Most of your current tenants aren’t going anywhere fast due to continuing affordability declines.
Why? Most industry experts expect a long-term trend of low vacancy rates and high renewal rates primarily due to escalating home prices.
Thanks to The Motley Fool’s Millionacres.
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