When it comes to real estate, location has always mattered, and it’s making a significant difference for investors who have rental properties in some southern states. According to a study done on the occupancy rates around the US, some southern markets have begun to show decreases in occupancy rates. While rents have risen in most regions, the numbers of prospects compared to the numbers of available units don’t match. Investors have begun to see their rental homes on the market a little longer than they would like and the projection is that the market will get a lot worse before it gets better.
For the last four to five years, bankrupt homeowners and skeptical would-be buyers flooded rental markets across the US. As a result, new rental housing construction projects took flight over the past few years and continue to go up. According to an article by MultifamilyExecutive.com, “Sweeping changes over the next two years are going to cause fundamentals in the [rental] market to weaken for the first time since 2009.”
The belief is that in areas where large construction projects continue (mostly the South), many more apartments and other residential units will be released that cannot be filled.
The article continues to note that the homeownership rates for adults under 35 fell during the first quarter of 2014, signaling an even bigger wave of potential renters into the market. The rental market will still have to make way for these millenials, who at roughly 75 million represent a very large portion of the population (apparently 22 is the most common age in the U.S. presently). But even with this high demand, it is anticipated that it won’t be enough to match up to the sheer overstock of homes. Reportedly, the bulk of the increases will be seen around the end of 2015, but some property managers say they are beginning to see signs of it now.
Interestingly, among those areas with anticipated increases in vacancies, cities like Charlotte, Austin, Dallas, Houston, San Antonio and Orlando, are some of the fastest growing areas in the US. They are expected to show tremendous growth in other areas such as employment, population, and household formation.
Moreover, not only is there concern over increased supply, but the type of supply presents an issue. Most of what is being built in these areas are considered Class A properties (top of the line, luxury properties) which adds considerable constraints and further exacerbates the problem. If potential renters find themselves unable to afford the higher rents that come with these properties, investors will still find themselves scrambling to fill these expensive units.
On the brighter side, rent amounts are expected to remain stable, but could level out in 2015 when supply is projected to reach its peak.
Investors should take a close look at demand and the pace of supply growth in their market, to determine whether now is the right time to plan their exit strategies. All of this information could signal a stronger buyer market and the time for investors to sell those buy and holds.
Are you seeing rental units on the market longer in your area? Do you agree or disagree with the projections?