I’ve been meaning to post about this for a while, but every time I think I’m done writing up my thoughts, I stumble across another great article about the changing psychology of home buyers and what it’s doing to the real estate market.
This conversation has been going on for a long time. When the bubble burst and the real estate market went into a free fall across the country, the most damaging side effect was a nation-wide drop in home prices. Which translated to fewer and pickier buyers, wary of overspending, and sellers petrified about the state of their finances, unable to comprehend that their lovely home, in many cases their primary investment, had taken an astronomical plunge in value. More transactions collapsed, foreclosures and short sales flooded the market, and normal real estate activity (upgrades, etc) flat-lined.
Buyers suddenly gained an unprecedented amount of power. In NYC, landlords began offering incentives (a free month’s rent upon signing! No fee!) for the first time in recent history. Even in Santa Clara County, a part of the country that’s weathered the real estate market’s turbulence relatively well, the changing psychology of home buyers has transformed the way agents, buyers, and sellers do business. To put it mildly, every side has a lot more at stake.
In the aftershocks of the recession, many potential homeowners aren’t up for the risk of taking on long-term mortgage. Who hasn’t witnessed the turmoil of parents, friends and relatives who are underwater, or who’ve lost their jobs but can’t sell their homes and therefore can’t relocate?
As a result, owning a home, once a hallmark of
adulthood and a fundamental part of the American
dream, has taken a backseat to renting.
The main reason is demand: The first four months of this year saw the strongest apartment demand in a decade.
With layoffs no longer dominating the headlines those who have kept their jobs or who found new ones are more likely to ink leases. Renters who bunked with roommates during the crash - and are probably tired of them by now - are striking out on their own, while others are upgrading from that bargain-priced unit to one with amenities. Meanwhile, the jobs market doesn’t look that great. The newly employed may be hesitant to commit to a 30-year-fixed mortgage, no matter how low rates are.
Renting offers flexibility, a virtue held at high premium these days. More and more Americans are working from home, or freelancing, or self-employed, and need to be open to career opportunities far and wide. Renters are also partially insulated from downturns and fluctuations in the real estate market: if your rent leaps twenty-five percent, at least you didn’t just lose your nest egg.
I predict that the rental market will continue to flourish. And I see this as a huge investment opportunity. If you survived the bubble’s mighty pop with your assets intact, now’s the time to consider purchasing a duplex, triplex, or even a small apartment building. These properties will yield a dependable source of monthly revenue, especially because, as the WSJ reports, the apartment sector is seeing the highest demand in a decade.
A decade.
It’s a good day for landlords, no?
Must read articles on the subject from the NY Times (about picky buyers) and Forbes (about renting to college students) and an interesting response to the NY Times piece on RealCentralVA.
