How Rental Market Growth Will Stay Strong

The rental market across the United States has been strong over the past seven years. As home prices plummeted, foreclosures rose, and mortgages became harder to obtain, demand for rental properties rose dramatically. Even today, after the market has cooled a bit, vacancy rates remain down and rental rates – and income – remain high. And while some predict a steady demise of the rental market as the housing market heats back up, there are several indicators that the nation’s rental market will stay strong for the foreseeable future. Younger Homeowners Are Buying Fewer Homes The American Dream, for decades, was to buy a home. Now, though, younger homeowners – burned by the worst housing collapse in American history – are understandably leery of taking on a mortgage. Homeownership as a whole fell by 1.7% from 2009 to 2012. Also, the number of new homebuyers aged 29-34 dropped by 50% from 2009 to 2011. Younger generations are important because they are the only way to replenish demand for homebuying that is passing away steadily as older generations age. If they do not purchase as many homes, demand lags – and rental demand increases. Student Loan Debt Is a Major Obstacle One big reason why young people aren’t willing to buy homes is because they can’t – thanks to stifling student loan debt. For people aged 25 to 34, unemployment is over 9% and the average debt load is $25,000. That can keep many from taking on yet another debt obligation, which means they have no choice but to rent after they graduate. Even those without major student debt might have other forms of debt as a result of the recession that keeps them from wanting to take on even more. As a result, younger Americans are fueling a rising demand for rental rates that coincides with a growing apprehension about buying real estate for personal use only a few years removed from the housing bubble’s demolition of 2007. For investors who are positioned to take advantage of what should remain a strong rental market, the next few years could be more profitable than anticipated.