US News & World Report recently wrote an article with the title, "Stage Could Be Set For a Rental Market Bubble." I do not think we are a "bubble" yet, but we could be at the beginning stages as explained below.
The increase in the number of people moving into rental housing increased 4.0% on a year-over-year basis in March 2012, according to Freddie Mac. Christina Aragon of Rent.com calls this increase "significant." I have been writing about how the rental market is very robust and properties move quickly in the South Florida market.
All the while, homeownership is at its lowest levels in 15 years, at about 65%. Not surprising, given the shift to rentals as noted above.
The reasons have been discussed before and will be briefly touched upon: tight mortgage credit market, increased downpayment requirements to buy a home, the increase in distressed properties have shifted previous homeowners into the renting category, etc.
The supply of rental homes is drying up and the cost of renting is increasing. Trulia reports rents were up 6.0% on a year-over-year basis in May 2012. Some markets have had even bigger increases, such as Miami, which was up more than 10.0%, according to Trulia.
All of this has increased the interest of investors. I have touched upon this in previous posts and I have seen this in the current South Florida market.
The argument for a potential "bubble" is that investors are flooding the market and ramping up potential rental inventory levels. The US federal government has announced plans to convert some foreclosures on its books to rental properties to help ease the current situation. Also, if credit standards are eased and more people can move into the homeownership category, that may ease rental demand. The potential increase in supply by investor properties and government owned foreclosures, coupled with homeownership demand could cause a "bubble" to burst.
I do not foresee this happening during the next two years, atleast. Jed Kolko, chief economist at Trulia claims, "most renters are still two or more years away from homeownership." Also, it will take those who owned distressed properties more than two years to fix their credit and be ready to once again be homeowners, in my opinion.
Also, increased home buying should spur demand and prices, which should mitigate the downside for investors. Those that are renting might be willing to buy the homes they are renting from investors, which would allow investors to enjoy the cash flows for several years (presumably at an acceptable rate of return) and then sell the home at a higher price than when they bought it.
As a local Realtor, I am aware of the trends in the US market as well as in many of the communities in which I specialize. If you are thinking of selling or buying a home, please feel free text me or call me at 561-247-3550.
For free home searches, please text me your name, e-mail address and phone number or visit my Web-site at http://homes.MYsouthFLrealestate.com
Michael Friedman
Realtor, Certified Distressed Property Expert (CDPE)
Member of Who's Who in Luxury Real Estate
Lang Realty
561-247-3550
http://MYsouthFLrealestate.com
Referrals are appreciated and welcomed.
Boca Raton FL real estate for sale and surrounding areas including real estate properties for sale in: Belle Glade, Boca Raton, Boynton Beach, Bryant, Canal Point, Dania, Deerfield Beach, Delray Beach, Fort Lauderdale, Hallandale, Hialeah, Hobe Sound, Hollywood, Indiantown, Jupiter, Key Biscayne, Lake Harbor, Lake Worth, Loxahatchee, Miami, Miami Beach, North Miami Beach, North Palm Beach, Opa Locka, Pahokee, Palm Beach, Palm Beach Gardens, Pembroke Pines, Pompano Beach, South Bay, West Palm Beach, Lang Realty
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