Why are so many people renting single-family homes or apartments in multifamily complexes?
The real estate market has been red hot across the country, and it’s only getting hotter. One of the results of that boom, however, is that nearly 2 million people have opted to rent instead buying a home.
The price tag on single-family homes is at an all-time high, which has created several challenges for renters looking to buy. According to a report by RENTCafé, more than 1.35 million people making $150,000 a year became renters between 2007 and 2017.
According to the U.S. Census Bureau, 20 U.S. cities have seen significant increases over the past decade in the number of renters who are “too rich to buy.”
Renters earning well over six figures are growing faster than any other renter income bracket. There are more than 43 million renters nationwide. Of that number, more than 2 million are top earners. It’s the largest boom in that demographic since 2007, when there were only 774,000.
The trend of high-income renters is best seen in urban areas like New York City, San Francisco and Los Angeles where median incomes and rental numbers are some of the highest in the country.
Despite COVID-19, California’s housing market couldn’t be stopped. In November 2020, California’s home sales surpassed 500,000 for the first time since January.
California’s housing boom, however, has created problems for high-income renters. The housing boom has created limited available housing, which has driven prices through the roof. As a result, nearly 1/3 of Los Angeles residents with incomes over $100,000 rent instead of own.
By 2017, LA had more than 450,000 high-income renters – a number that jumped 30 percent in just 10 years – according to a report from Apartment List. San Francisco and San Jose are the only other areas in the state with higher percentages of high-income residents who rent rather than own their homes.
This trend isn’t relegated to just the west coast. The report shows a nationwide increase of high-income renters. Cities like New York City, Chicago and Washington, D.C. have seen enormous growth of high-income renters since 2008.
As much as this boom has affected renters and buyers, it has also affected investors. Because high-income residents are being forced to rent in most major cities, investors are seeing higher rents, a higher class of tenants for their existing portfolios and a reduced number of new properties to buy.
The demand for single-family rentals has prompted investors to find a way to have available housing for those in the market to rent. Enter build-to-rent homes.
Build2Rent® loans are reserved for investors who are interested in building maybe one or two rental homes in an upcoming development. These Build2Rent® properties are akin to traditional, gated residential neighborhoods with upgraded features like keypad locks, wireless fixtures in the home and upgraded appliances without burdening residents with HOA costs. Or servicing mortgage debt.
There’s a national housing shortage. Lima One recognizes the need to move fast when new properties are available or when that perfect piece of land pops up for your rental properties. Our goal at Lima One is to help you move fast when you’re ready to buy. Lima One has several loan options designed to meet our client’s needs. We offer a fast pre-approval and lines of credit, a quick closing and an in-house underwriting process that is efficient with the client’s needs in mind.
What do experts predict for this trend in 2021?
Ingo Winzer, a real estate writer for Forbes, believes several different components will affect the housing market, including urban migration and migration to affordable housing. Winzer detailed the reasons for the migration in a December article. He wrote:
The movement to the big cities will continue. Even though the pandemic showed that many jobs can be done from anywhere, people and businesses still want to be near the infrastructure, the social activities, the access to premium healthcare. People will move where the jobs are, and away from expensive housing. For decades, young people moved from the Northeast to Texas and Florida. Recently they’ve been leaving California.
The rental migration shift will create new opportunities for investors to buy profitable rental housing. With record low rates for single-family loans and multi-family loans, investors can continue to snatch up units to rent out, which will help the rental property market to grow and make 2021 look promising.
Dalton Elliott, Lima One’s Director of Sales and Customer Experience, said in a December column the current rate environment will keep the housing market strong. The Federal Reserve Board has stated its intention to keep rates low for the short and medium term, which will keep lending rates low.
Elliott said the prospects for 2021 are “incredibly bright.” He added:
The American housing industry has gnashed its teeth and held strong throughout the unexpected right hook of a global pandemic. Real estate investors, mortgage brokers and lenders all answered the call to keep the industry rolling forward. Operating on the valid assumption that a vaccine and an end to COVID-19 is around the corner, 2021 should shape up to be an incredibly fruitful year for all.