We’ve been hearing about how the residential real estate market is booming, and now this trend is spreading to the rental market.
Demand for two particular types of rentals is especially high: single-family homes and apartments in smaller cities that have less inventory. Rents for single-family homes are growing at the fastest pace in 15 years, according to data firm CoreLogic. Parts of the country that used to be considered affordable are suddenly experiencing the kind of rent frenzy with bidding wars and surging prices that had previously been exclusive to mega cities like San Francisco and New York City.
This is a logical development given what’s been going on in housing. The economy is rebounding and we’re flooded with liquidity, and now we have young people who have been living at home starting to venture out again. The rise of remote work has people fleeing huge cities like New York and San Francisco to places like Boise.
We know there will be short-term affects when it comes to the real estate market and rental market in response to the Coronavirus pandemic. The question is how long that lasts. Will there still be issues 6 months from now? One year from now?
In places like New York City, the effects are significant. New rentals have plunged 71% in Manhattan. That’s a lot to unwind over the next 6 months to a year.
Will there be fewer office jobs in NYC as companies offer more remote work options? Will fewer people want to move to NYC until the virus is completely eradicated or we have a vaccine?
The psychological effects are real, and sometimes it can take years to get back to normal after a recession or event like an earthquake or hurricane. Effects from a pandemic may be even worse.
There’s a ton of demand out there for apartments as many Americans turn to renting as opposed to buying homes. With this demand, more apartments will be built and that’s having an effect on housing starts.
U.S. housing starts surged to a 1-1/2 year high in November and permits for future construction were the highest since March 2010 as demand for rental apartments rose, offering hope for the weak housing market.
The Commerce Department said on Tuesday housing starts jumped 9.3 percent to a seasonally adjusted annual rate of 685,000 units, the highest since April last year.
October’s starts were revised down to a 627,000-unit pace from a previously reported 628,000 unit rate. **** Building permits, a gauge of future construction, rose by 5.7 percent. The increase was spurred by more apartment permits.
New homes have an outsize impact on the economy. Each home built creates three jobs for a year and $90,000 in taxes, according to the National Association of Home Builders.
Although the overall housing market remains weak, rising demand for rental apartments is boosting the construction of multifamily homes.
Falling house values and stringent lending practises by banks are pushing Americans away from homeownership.
It will be interesting to see how this trend plays out, and it offer business opportunities for people who can exploit these trends. The buying vs renting debate on real estate is definitely tilted now towards renting with the tight bank lending practices.
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