The USA Today recently posted an article discussing how more American families are renting rather than buying. This is an obvious consequence of the credit crisis and the housing bubble. But, has renting single-family houses become the new American dream? Renting may not seem as glamorous as buying, but the risks and stress associated with renting may not be as great.
Many people who bought 6 or 7 years ago, during boom times, have felt the pain of a precipitous decline in housing values- leaving them (in many cases) SEVERELY up side down. Homeowners found themselves either trapped in their homes, hoping that the values of their properties would return when the “economy turned around”, or forced into foreclosure. These unfortunate victims of the historic housing crash have been forced to rent single-family houses and, in some cases, have found it to be a better alternative. Renting still gives tenants the upside perks of living in a home, without the downside pressures of mortgage payments and up keep associated with home ownership. Also, renters have the freedom to move when the timing is right- a luxury not afforded many unfortunate homeowners who owe far more on their mortgages than their homes are currently worth.
According to the article, the new “breed of American tenants are older and have kids, U.S. Census Bureau data indicate. The new tenants are “a family, two kids, a dog and a fish bowl,” says Gregor Watson, managing director of 643 Capital Management, which has 400 single-family rentals, most in the San Francisco Bay Area.” The current foreclosure crisis will cause 3 million former homeowners to become tenants of single-family homes between 2010 and 2015 says John Burns, CEO of John Burns Real Estate Consulting.
Further, according to a study released by the Federal Reserve the average American family’s net worth dropped almost 40% between 2007 and 2010 to values not seen since the early 1990s. According to CNN, the deflating statistics show the recession wiped away 18 years of savings and investment by families; the proof is in the stunning drop in median net worth — from $126,400 in 2007 to $77,300 in 2010. Source- http://fox4kc.com/2012/06/12/economy-family-net-worth-suffers-a-record-decline/
This trend has created an unprecedented opportunity for investors of Single-Family Residential Real Estate- the opportunity to pick up quality investment properties and historic prices and occupy them with quality tenants. This is one reason why we advocate focusing on “Better Properties” in “Better Areas.” The tenant pool has grown considerably- giving landlords and property owners choices to select quality tenants. Those hurt by the housing crisis still want to reside in single-family houses and still have opportunities to earn a decent income. Further, as they’ve been burned once by home ownership… renting (for many) provides a better alternative during this transitory phase in their lives.
The next 5 years are going to be historic for Single-Family Investment Properties in many USA Real Estate markets. According to the article, “In the next five to 10 years, you’ll see tens of billions, if not hundreds of billions, of dollars of private equity” pouring into the single-family rental business, says Justin Chang, principal of investment firm Colony Capital.
As the single-family housing market bottoms out and private money “pours” back into the system, the savvy investors who select wise investments in neighborhoods that have upside capital appreciation potential in the next 3-5 years… will win. According to Paul Willen, a senior economist in the Federal Reserve Bank of Boston, “The end game for investors is to sell these homes profitably in three to five years, to owners.”
Source: Home Rentals- The New American Dream? USA Today, 6/6/2012