The Rise Of A New Class Of Renters Is A Property Manager’s Dream

The Rise Of A New Class Of Renters Is A Property Manager’s Dream

Posted: 18 Nov 2013 04:21 PM PST

If you’re a potential buyer or a former owner, you’re darned if you try to own and darned if you’re currently an owner. Unless you own a rental home or a multi-family residential income property, the days of buying a house and expecting the price to automatically rise with demand aren’t here yet.

We were reminded of this on Monday October 21st when we learned that U.S. home resales fell in September and prices went down as higher mortgage rates took the lilt off the housing market recovery. The National Association of Realtors (NAR) informed us that sales of previously owned homes actually fell 1.9 percent last month to an annual rate of 5.29 million units.

At the same time, the median price rose 11.7 percent in September from a year ago to $199,200. While that was the 10th straight month of double-digit gains, it was the smallest increase since April. “This softening had been expected in response to the increase in mortgage rates that began in May,” said Daniel Silver, an economist at JPMorgan in New York.

The NAR said a combination of high home prices, barely rising salaries and higher mortgage rates was hurting affordability, which hit a five-year low in September according to its gauge. The trade group said sales probably peaked in July and August.

No Immediate Turnaround in Sight According to a recent Reuters report there’s at least one more month of declining home prices and an ongoing dip in the affordability housing index. “Economists said they expected home resales to decline again in October in part because a 16-day partial government shutdown had hurt consumer confidence and likely delayed the processing of mortgages backed by the Federal Housing Administration.”

Some economists believe that despite these current headwinds the housing market recovery remains intact. Perhaps their crystal ball sees a 10-year Treasury bond rally ahead which will lower the yield. Mortgage rates are tied to the interest rate on the 10-year Treasury which as of October 21st is still around 2.6%. That would explain the following quote from an East Coast economist.

“The housing market is not faltering, it’s just that the rapid improvement has been stunted,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “That is not a terrible thing as many were worried about another bubble being formed. I still think the sector has a long way to go.”

That may be true but what about the first-time homebuyers and young adults who in the past were a big part of a housing price recovery? First-time buyers accounted for only 28 percent of the previously-owned home sales, way down from the 40 percent to 45 percent that economists and real estate professionals normally anticipate.

Investors, including REITs and large, publicly-traded opportunists like The Blackstone Group (NYSE:BX) have been the big purchasers in recent months, bought only 19 percent of the homes in September, with almost three quarters paying in cash. Any way you slice it homes are also not selling as fast as they did in the summer. A home’s median time on the market in September was 50 days. That was up
from 43 days in August, but down from more than 70 days a year ago.

The silver lining in the report was that distressed properties (which can lower prices because they typically sell at deep discounts) accounted for only 14 percent of sales last month. That’s way down from 24 percent a year ago. The number of unsold homes on the market was unchanged at 2.21 million in September, representing a 5.0 months’ supply.

I had to wonder how many foreclosed and bank-owned homes were included in the supply numbers, and how many weren’t because they’re being held from the market for now. September’s supply numbers compared to August’s 4.9 months supply. According to the NAR a 6.0 month’s supply is normally considered healthy.

A New Class of Renters Continues to Unfold The bottom line is that millions are either priced-out of the housing market or can’t qualify for financing, no matter how low interest rates are. This demographic has the owner’s-pride mentality and scruples of people who would in times past have been buyers. Many potential first-time buyers are still saying, “It’s less expensive and less risky to rent!”

Property managers and landlords can ask for a higher deposit from this new breed of renters. They have the money to be more upscale on the kinds of rental properties they live in and have the money to prove it. Expect many of these renters to be either self-employed or to hold multiple jobs. They know that property managers will screen them carefully and they want to qualify for the most desirable rental housing they can afford.

The way to go after this new class of renters is to lead with the strengths, benefits and advantages of both your properties and having a manager like you. The new renters will pay more for better locations, nicer amenities, and excellent management services.