I’m the CEO and cofounder of RentSpree, and I write about real estate business. RentSpree is reimagining how people rent homes.
Often seen as the “American dream,” a detached home with a white picket fence is an image deeply ingrained in our national psyche. Yet, this dream seems increasingly distant for many, particularly the younger generation.
Today, renters are facing a number of challenges that real estate professionals should be paying attention to:
1. Affordability woes: For many Americans, especially renters, the distinctions between the rental and for-sale markets are stark, as homeownership is often seen as an unattainable goal. Prices of houses have skyrocketed in recent years, reaching a near-record median price of $410,200 in June. In states like California and Washington, the story gets grimmer. Compounding this is the near-8% mortgage rate.
Such dynamics in the for-sale market have an inevitable ripple effect on the rental landscape. As homeownership becomes challenging, many people, particularly Millennials, seek rentals. This trend has pushed up the average age of first-time homeowners to 36 and drives about 36% of U.S. households into rentals.
2. Rental shortages and implications: The rental market is directly related to the for-sale segment. A surge in demand has stressed the rental sector. The repercussions are apparent: an alarming shortage of 3.8 million units of housing and spiraling rents. Prices are surging in response, with the U.S. average rent coming in at $2,011 and average monthly rates in places like New York touching $4,450.
3. Rent control: In attempts to curtail these skyrocketing rents and offer some reprieve, the discourse on rent control has returned to the fore. With roots in the 1920s and now under renewed focus from the Biden administration, I’m seeing rent control measures proliferating in several states. While these measures can be beneficial, particularly to long-term residents, the broader implications of rent control are complex. From my view, constrained by controlled rates, some property owners might seek alternative, more lucrative avenues, which could result in a decreased rental supply.
What’s the antidote to these intertwined challenges?
There are a few considerations real estate professionals can keep in mind moving forward to navigate and address these challenges.
Explore ways to speed up new housing construction.
Facilitating new builds can provide a much-needed equilibrium to the market. States like California are trying to embrace this approach by extending a law that makes it easier to initiate large-scale affordable housing projects, thereby protecting them from bureaucratic red tape and potential legal hurdles. Some effects are already palpable, as the law has already led to the construction of thousands of new units in the state, the Los Angeles Times reported. To me, this signals hope and opens a more comprehensive range of choices for renters.
Real estate leaders can help support the housing construction process by advocating for similar policies and studying builders in California to see if any of those strategies can be used in their own areas or communities.
Accept the reality that interest rates might not decrease.
If you’re an investor hoping to buy and/or invest in a property, adapting financial plans accordingly is a wise approach for the future. While hoping for lower interest rates is natural, preparing for the possibility that they may remain stable or even rise is essential. Ultimately, embracing the uncertainty of interest rates and aligning a financial strategy is responsible and pragmatic.
Embrace the pivotal role real estate professionals can play.
Real estate professionals’ value transcends beyond the traditional domain of facilitating transactions. Today, real estate leaders are educators guiding clients through this ever-evolving maze. They can demystify market intricacies, offer invaluable insights and, in essence, act as trusted advocates.
You can fill this important role by translating complex real estate jargon into simple language when speaking with buyers or renters. You can also illuminate market trends today and in the coming months, help with mortgage rate and downpayment estimates, point to tools to help build a solid credit history and help research the pros and cons of different markets locally and across the country.
Real estate professionals have always been the linchpin in the complex transactional process of purchasing a property. As the U.S. real estate landscape continually reshapes, one element remains steadfast: the indispensable role of education and knowledge.
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