How’s The Market?

August 8th, 2014 by jamshid

Part 4 – Rentals

Piggybacking on Part 3 – Investing In Real Estate is “how’s the rental market?” First, a little economics 101.

When buying a home is cheaper than renting, people who can will buy homes and the amount of available homes for rent increases and rental returns decline.

Conversely, when home values rise and buying a home becomes more expensive than renting, the amount of rentals goes down and the price of rentals increases. Simple economics.

Over the last couple of years ending at the beginning of 2013, our market was undervalued. This basically means that buying a home was cheaper than renting a home. This doesn’t happen all that often so when this trend happens, it’s time to buy as many found out in 2011 and 2012.

However, since the beginning of 2013, homes are edging on unaffordable, sales have declined and as such renting is more affordable and cheaper than buying. Over the last year, rents have risen.

For those investors who purchased in the 2011 through the beginning of 2013, congratulations! You are in the fantastic position of having acquired a lot of equity AND rental income over the last 3 years. In fact, anyone who purchased during this time has seen the value of their homes go up from 30% to 50% during this time period.

The number of rentals available, however, is declining and as such, over the last year rents have increased. This is a nationwide trend.

This is a good thing for landlords and not so good for renters.

One of the problems with renting is that rents can go up while one of the benefits of buying is that, if you get into a 30 year fixed mortgage, your house payment stays the same for the long haul bucking the trends in rentals in the process.

The Rental Market

For investors who purchased in the last few years, the rental market is great. Their debt service is low, or should be, compared to the rents and many are getting a positive return on in investment (ROI).

While this covers what has happened in the last few years, going forward I believe that investors need to be mindful that we, in all likelihood, will not see skyrocketing appreciation like we have over the last few years. I do think real estate will appreciate going forward but, according to most economists, not dramatically so.

With that in mind, the monthly rent will need to cover the monthly expense of owning a rental which, unless you’ve got a good down payment or are executing a 1031 exchange, might be hard to do.

For renters, the news isn’t good. If you’ve been in your rental for awhile then it’s possible your rent may increase but not dramatically so. If you’re planning on moving into a new rental in the same area you’re currently in, expect to pay more for the same home. It’s the downside to renting. Yes it is cheaper but you’re not entirely in control of your housing expense.

The housing market, while stalled at the moment, is improving just more slowly than we’re used to. If you can afford to purchase I would. According the Jordan Levine at Beacon Economics, every metro area in the state is showing job growth currently. More jobs will mean more buyers in the market for homes and that will mean higher home prices going forward

It’s a good thing! Click here for Part 1, Part 2 and Part 3 in this series.

Buying or selling a home in Rocklin or Roseville? If so, I’d like to help you. Please call or text me directly at 916-532-7653 or click here, for my contact page.

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