Rental Property Forecast for 2017

 

Rental Property Forecast for 2017

Millennials Will Drive Rental Supply and Demand

Rental Property Forecast For 2017

Real estate analysts are still measuring the “Trump Effect” and the millennial effect on US housing and rentals. Most experts feel the housing market is “under-supplied” and that mortgage rates will remain favorable despite interest rate hikes from the Federal Reserve. And, with soft supply, the rental market is expected to remain strong, especially in busy metropolitan areas.

With Trump’s emphasis on growing the economy and implementing a more favorable tax structure, American millennials will have more money to spend. Zillow estimates that rents in metro areas will continue to climb another 1.7 percent in 2017, on par with 2016 growth. (http://www.thefiscaltimes.com/2016/11/22/10-Real-Estate-Trends-Watch-2017).

At the same time, Zillow projects home values will increase by 3.6 percent in 2017 and 2.97 percent in 2018. However, more take home pay may not translate to more ready, willing and able buyers. Analysts foresee many millennials packing their bags and moving away from their parents homes in 2017. This is expected to create more demand for rentals in 2017.

The Impact of Short Term Rentals

Short term rental demand through Airbnb is strong. However, a majority of analysts feel the impact of short term rental property on the overall housing market is negligible. However, the convenience of whole home or one room rentals is expected to have an impact on the hotel industry.

Presently, Zillow reports the cost of rental property in major metro areas like LA or NY can cost about 40 percent of the tenant’s income (http://www.zillow.com/research/short-term-home-rentals-zhpe-13927/). President Elect Trump may not have a solution for the rising cost of rental properties in large metro markets but a new income tax policy will be welcomed by big city tenants.

Millennials Will Drive Rental Supply and Demand

Millennials are expected to significantly impact demand fro housing and rental units. More millennials will apply for mortgages in 2017 than did in 2016. But, more millennials will also start living independently and increase demand for rental property.

As the President Elect promised more jobs and seems prepared to invest in the country’s lagging infrastructure, new jobs means more income for millennials. However, Zillow also predicts that many millennials will be willing to travel further to get to work. Look for growth in the suburban housing and rental market in 2017.

According to Forbes, the housing market only added 1.1 million units in 2016. However, 900,000 of those units were from previously vacant housing. Expect to see significant housing and rental unit construction in 2017.

New rental occupancy rates will still be affected by population growth, which accounts for 50 percent of demand. Adult children moving from their parent’s basements and high divorce rates will also contribute to the number of singles looking for rental units in 2017. These groups are more interested in housing for one or two years than in long term, more permanent housing investment (http://www.forbes.com/sites/billconerly/2015/12/10/housing-forecast-2016-2017-two-years-of-growth/#7505c0b37add).

Higher Rental Demand

Rental market prices will increase slowly. But, The Fiscal Times reports that 40 percent of Americans prefer to rent rather than buy. This demand will drive construction companies to invest in and build new apartment complexes in 2017 (http://www.thefiscaltimes.com/2016/11/22/10-Real-Estate-Trends-Watch-2017).
Again, President elect Trump’s new immigration policy may have a negative impact on the building industry. If labor costs rise, rents will also increase.

Zillow also predicts that more Americans will drive to work. This is a reversal of the housing trend of the past decade. With 80 million millennials considering their housing choices, they will not only drive rentals in 2017, but they will be driving or using public transport to get to work. The bottom line is that as our millennials get on their financial feet, housing and rental marketplaces will see increased demand which means prices and values will rise in 2017!

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