Will the Demand for Rentals on the West Coast Increase in 2019?
The short answer to the question is yes. This trend has many influences, most significantly that it’s still a seller’s market. The demand for homes is still greater than the supply. With such competition, many won’t be able to afford or find a home, leading to higher demand for rental units and higher rental fees.
Is a Crash Ahead?
Worries about a housing crash persist as we move into the new year, and those concerns are warranted, given the double-digit appreciation seen in some of the country’s hottest markets. There is also a large millennial middle class that’s hoping to buy their first home. Economic performance is still stable; however, interest rates could see a hike as well.
New data from the Mortgage Bankers Association denotes that 30-year mortgage rates are now above 5%. On top of this, Zillow believes things are likely to stay this way. According to Zillow, the 30-year mortgage will continue to increase throughout 2019. Zillow is now forecasting that the 30-year mortgage will finish up 2019 at approximately 5.8%.
While it’s not great news for those who are looking to buy a home; it’s not bad news for those that hold rental property in their portfolio. Some people will be priced out of the housing market, making rentals their best option.
The Zillow report also predicts rent growth in 2019, which had been stagnant in the latter part of 2018. Higher rates and lack of supply keep buyers out of the market. The downturn in rent from 2018 will reverse course with higher demand.
Market Increases and Lack of Supply Impact Rent Prices
While mortgage rates are expected to be at their highest since the recession, Zillow also predicts that home prices will continue to rise, even though it may be slower. However, cities where demand keeps growing won’t see this slowdown at all, many of which are on the West Coast. Looking at cities like San Diego, San Francisco, and Seattle, we believe rental rates will continue to rise. These are sought-after cities to live in, so their population will continue to rise, but these new residents may not have the funds to be a buyer in a seller’s market.
All of these things will come together to create a probable slower-moving market in 2019. Buyers can have a chance to take more time to make a decision instead of participating in a bidding war. New home building should continue to be steady, but many say the construction industry has not recovered from the recession and that labor is hard to find. Thus, there aren’t enough new houses being built to fill the demand.
Next year could be pivotal as the market transforms from one marked by strong recovery into one more in line with historical norms and more balanced between buyers, sellers and renters.
Should You Increase Rent on Your Property?
If you’re looking at all the factors in place, it makes sense that you could increase your rental fees for your investment properties, but they should always be comparable to what else is available in the neighborhood or market. Just as homes can be renovated out of local comps, rental homes can be as well.
There is also competition from large multi-family corporations who have created luxury apartment homes with all the amenities that are highly sought after by millennials. These are all aspects that should inform your decision to increase rental fees.
The new year is just beginning, and there is already so much conversation about what this market will do and when. The overall standpoint is that the market is healthy and rental properties will remain in high demand.
Noah Smith is a brilliant and thoughtful writer that I’ve had the pleasure of reading over the years on his...