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The Rise of the Long-Term Renter
This is a guest post from Jason Randall, the VP Product Management with AppFolio, creator of the Web-based property management software AppFolio Property Manager. He is
responsible for setting the product and market entry strategy for AppFolio products, and spends his time listening to customers and working closely with the engineering team to define the business problems AppFolio’s products solve. Extreme ups and downs have been the norm for the housing market during the past decade. Questionable loan practices, rock-bottom interest rates and the highs and lows in housing demand have contributed to this
fluctuating market. Yet one consistent trend looks like it’s here to stay – and that’s the falling rate of home ownership. In fact, a recent Bloomberg article reports that home ownership fell to an 18 year low this spring, the lowest since 1995. By now, it’s obvious that the housing market isn't rebounding in the same way the economy has. While many homeowners and prospective
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buyers may have expected the two to keep pace in terms of growth, several factors unique to the housing market have complicated its revival and changed the landscape for years to come.
Simply put, the current low of home ownership rates has created a rising population of renters – and unlike the more transient patterns of earlier renters, a large percentage of this population will probably embrace renting as a long-term way of life.
Consider the following factors at play in today’s housing market:
Foreclosures. When the housing bubble burst a few years back, the tide of foreclosures created a crop of renters who’ve been saddled with bad credit and often a deep fear of signing another mortgage.
Economic downturn. Many people who want to buy a home right now simply can’t afford to do so, due to stagnant wages, underemployment or job losses.
Tight credit. Unlike the more lenient loans of a few years back, when almost anyone could qualify for an adjustable rate mortgage, tighter lending restrictions have eliminated many would-be buyers from qualifying.
Down payments. While three percent or five percent down payments were acceptable in the recent past, many lenders these days are requesting a twenty percent down payment. Many current renters simply can’t put their hands on that kind of money.
Rising interest rates. Despite hitting historic lows recently, interest rates are on the rise again, cooling buyer interest.
Investors. Single-family homes are getting snapped up quickly by investors, reducing inventory and driving up prices. The lack of affordable homes on the market has kept other renters from considering buying.
These conditions have produced a strong demographic of renters who are changing the rental market with their unique concerns and needs. Former homeowners may be skittish about buying again, even with a good credit score. In a volatile job market, other renters may prefer to stay mobile and free to move as needed for the right job. Then there is Generation Y, whose student loan debt and dismal employment options have forced them to put their home ownership dreams on hold - or cancel them permanently. Unlike earlier generations who often bought houses when they began families, many millennials will likely continue renting long after they begin having children.
All of this has set off a wave of repercussions in the world of property management. Given that the above factors have shut off the flow of new homebuyers for an indeterminate number of years to come, it’s not a surprise that experts predict homeownership rates will continue to fall. For the first time many Americans view renting not as a stopgap measure on their way to ownership, but as an acceptable and even preferable way of life. Renting has become a financially safer option that poses minimal fiscal risk while offering the freedom to pursue better career opportunities for many.
This reality can already be seen in the current rental market, where rents are climbing and vacancies are low. The current demand for multi-family housing is unprecedented, spurring new construction of apartment buildings and condominiums. But because new facilities and multifamily units can take years to build and market, many companies are working quickly to renovate and revitalize existing properties to make them appealing to current renters.
With a rental shortage forecast for years to come, the property management field is clearly on an upswing. Smart property managers and companies will do the legwork now to position themselves for success. Upgrading current properties and creating a strong marketing infrastructure are always wise strategies when it comes to creating a thriving living community, it’s true. But as America’s population of renters continues to grow, and renting becomes the long-term housing option of choice, property managers who strengthen their offerings now will be poised to dominate in a future where renting is king.
Large percentage of this population will rent for long-term
by: Apartments.com, September 30, 2013