– Staying informed about affordability and flexibility trends is important for real estate agents
– Renting has become a more viable option due to high property prices and mortgage rates
– The rental market has been more fluid compared to the stagnant single-family home market
– Rental rates experienced a cooling trend in 2022 after a surge in previous years
– The decline in rents is influenced by supply and demand dynamics
– Southern California, including Los Angeles, has seen a decrease in asking rents
– Construction data forecasts continued growth in multifamily unit supply, benefiting renters with more choices and concessions
– Renting is estimated to be 52% cheaper than buying in most markets
– The demand for rental properties is bolstered by the hybrid work environment
– Affordability challenges and increased flexibility will continue to shape the rental market in 2024.
In the ever-changing American housing landscapes, agents are well advised to stay attuned to shifts in affordability and flexibility trends, as these factors drive the growth and evolution of rental demand and can have a substantial impact on those servicing the real estate segment.
For agents, staying informed about these developments is essential for strategic decision-making and client guidance in the coming year and beyond. Plus, seeking the most efficient tools to service this segment and help create income while the for-sale market remains challenged and provides less opportunities. Continuously elevated mortgage rates coupled with inflated property prices have created a sort of stagnation in the for-sale segment. Around 49% of agents sold either zero homes or only one in the past year, according to a recent study by the Consumer Federation of America.
While the single-family home market remains rather stagnant, the U.S. rental segment has been quite fluid. Following a surge in rents during 2021 and early 2022, the sector experienced a notable cooling trend in rates last year, according to data by Apartment List. This development is crucial for agents, as it brings not just relief to tenants nationwide but also might create more movement as renters are looking for better deals. Year-over-year rent growth dipping by about 1% is a departure from the earlier upward trajectory. Notably, this downward trend marks a first since the early days of the global pandemic.
The decline in rents is not solely tied to economic factors but is also influenced by supply and demand dynamics. Higher housing costs, inflation concerns and economic uncertainties have led to stagnating household formations, contributing to the market’s deceleration. Simultaneously, a historic boom in multifamily construction has increased the supply side, resulting in a national vacancy index hovering around 6.4% — slightly higher than the 2019 average.
Southern California, a significant real estate market, mirrors this trend, with asking rents decreasing. While this offers relief for apartment seekers, the median rent in Los Angeles remains at $2,795, emphasizing ongoing affordability challenges in the state and other high-demand areas.
Looking ahead, construction data from the Census Bureau forecasts continued growth in multifamily unit supply throughout 2024, as one million new units under construction are expected to peak in completions, making 2024 a landmark year for new multifamily supply. This increased competition is anticipated to benefit renters, offering them greater choices and concessions as multifamily operators prepare for the influx of completed projects.
As affordability issues persist nationwide due to record-high property prices and continued elevated mortgage rates, an increasingly larger number of individuals are likely to opt for renting as a more financially viable option. It is important to understand that the equation has shifted – renting is now estimated to be 52% cheaper than buying in most markets, according to data by CBRE. Despite predictions of lower mortgage rates in 2024, agents should be aware that this may not be sufficient to alter prevailing dynamics in the for-sale segment.
Last but certainly not least, the demand for rental properties is further bolstered by the prevailing hybrid work environment, a defining feature of the post-pandemic landscape. Office vacancies reached all-time highs in the fourth quarter of the previous year according to data by Moody’s Analytics due to companies downsizing their physical footprint in response to remote working trends. This is likely to result in increasing flexibility for renters as well as demand for rental properties that offer spaces conducive to both work and home life.
In summary, the 2024 rental market, shaped by economic and societal shifts, is likely to be very dynamic and poised to continue gaining relevance. Affordability challenges and increased flexibility will likely remain dominant trends, making the rental market a crucial component of the real estate landscape and for those servicing it.
Michael Lucarelli is the CEO of RentSpree.
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