Ever since the financial crisis and recession began over four years ago, our country has increasingly become a nation of renters. Home ownership peaked at 69 percent during the housing boom only to decline rapidly to a now 15-year low in 2012. Will 2013 turn the tides back, as interest rates stay low and the job market improves? Or have the volatile markets this past decade turned an entire generation away from real estate investments? What new surprises will 2013 bring? Here at RentHop, we see a broad cross section of the rental inventory and what real estate professionals are doing to price and market their listings. With that, we are happy to present RentHop’s five predictions for 2013.
Rents will continue to rise as the economy improves and demand increases.
News of job cuts and layoffs may seem to still dominate the daily headlines, but the truth is the job outlook has improved drastically since the depths of the crisis. Nationwide, unemployment reached a high of 10 percent in October 2009, but has been on a very steadily improving trajectory over the past three years. In urban areas such as New York City, Boston and Chicago, the rental real estate recovery seems poised to continue through 2013. Yes, there have been hiccups along the way and we may see more this year, but we fully expect current tenants will see rent increases this year in most cities, with the higher cost of living metro areas seeing the largest increases.
Inventory will be much tighter than the last few years.
Finding great deals in desirable locations will be harder than ever, as increased demand puts more pressure on the shrinking rental supply. There will always be many advertised apartments, but in competitive cities, renters will have a difficult time wading through overpriced or low quality offerings. In Manhattan, for example, our own data shows that the single-occupant sized housing, the studios and 1BRs, are in the highest demand compared to previous years.
More rental supply will come from individual owners of condos, houses, and co-ops.
The record low interest rates from the last several years pushed many people into purchasing homes as a primary residence, second home, or investment property. Government stimulus policies such as the home buying tax credit expiring in 2010 drove many people to complete their purchases before losing out on the generous subsidy. Even today, 30-year rates hover near record lows. Coupled with rising rents, the conditions seem right to encourage even more home buying.
Many individual real estate investors who purchased apartments or housing in the past few years will be looking to convert their dwellings into rental properties. The landlord route is especially attractive for condo owners in larger cities who can achieve break even or positive cash flows while benefiting from generous tax rules (many landlords can deduct HOA dues, condo fees, and property depreciation among other things which tend not to be deductible when residing in the home). Also, despite the higher levels of home buying, prices have still not recovered to their pre-crash levels. Homeowners who need to move out of their purchased primary residences may decide subletting for a few years and waiting for a continued housing recovery is the most prudent path.
Urban areas such as New York City and Boston will become much more reliant on brokers.
Rental real estate brokers have always been concentrated in the most densely populated, urban areas where apartment hunting is more competitive and quality supply is hard to find. One of the consequences of more small-time individual investor landlords is a greater fragmentation in the market. Rather than discovering all the rental availabilities through large management firms or apartment complexes, renters will need to rely on brokers and aggregation websites that contain a broad range of listings. Attempting to find an apartment without a broker will be increasingly more frustrating as the best supply may not be widely advertised.
Generic classified columns such as Craigslist and newspapers will be less relevant compared to richer, more locally specialized search engines.
We are shifting into a new paradigm for apartment searching. Renters now increasingly leverage mobile browsers, map-based searching, and social media in their search. At RentHop, for example, over 20 percent of our daily visitors today browse for apartments using a mobile device rather than a laptop or desktop PC. They also filter through their choices in more specific ways to quickly narrow down the candidate selections. Older search sources that only provide basic text filtering and ambiguous neighborhood boundaries will no longer be sufficient. Today’s renters demand websites that can quickly discover the best-valued, highest quality apartments using localized data and advanced filtering to aid in the search process.
Editor’s Note: Lee Lin is the co-founder of RentHop.com, the smarter apartment search marketplace. He is a self-described data geek from MIT who spent years at quantitative hedge funds cranking out models to explain and predict financial markets. Real estate has always been a big part of Lee’s life. He grew up helping out at his parents’ Jersey Shore motels, became a landlord his first year out of college, analyzed mortgages on a fixed-income trading desk, and acquired a New York real estate license.