How Renting Can Soon Change the Real Estate Market

As 2012 begins to kick into full gear, the real estate market is already heating up.

If you’re talking about rentals, that is.

Truth be told, renting has become the fastest-growing component of the overall real estate market over the last year, simply because fewer people are buying homes than they otherwise would in a healthy year. Falling home prices, incredibly-tight lending standards, and stubborn unemployment rates have all contributed to pushing would-be buyers to the other side – renting.

This isn’t to say that renting is inherently “bad” – for many people, renting is the cheaper and wiser option. But for those who want to build up equity in a home, break free of a landlord once and for all, and purchase a home at severely-discounted prices, renting just will not do.

Fortunately (or unfortunately), renting will have a noticeable impact on buying and selling homes in 2012, perhaps even more so than in 2011.

The Market Outlook for 2012

First, we will take a look at the general outlook for real estate as a whole –both in the residential rental market and the new/existing home sales market – to see where we are headed.

Home Sales Outlook

The general consensus among industry experts is that median home prices will continue to fall in 2012, perhaps as much as 3.5% by mid-year. This will impact new and existing home sales, but perhaps not in a negative way. The National Association of Realtors, for example, predicts that home sales will increase by 5%, with new housing starts going up by 15% from 2011. Naturally, this depends on where you live, and largely trends began in 2011 will continue through 2012.

In short, demand for homes will rise – but so will foreclosures. In fact, foreclosure properties are expected to increase throughout 2012 and likely into 2013, meaning the residential real estate market will have plenty of supply in the form of cheap, discounted properties in the form of foreclosed homes.

Rental Market Outlook

By and large, the rental market across the nation will continue to improve as it did throughout 2011. In many metropolitan areas in particular, vacancy rates have plummeted and rental prices have risen sharply. This trend may taper off a tad, but more or less will continue throughout the year – meaning people will be paying more money to rent the same apartment in 2012 as they would have in 2011.

In fact, the proposition that more job growth in 2012 will lower the unemployment rate (as is expected) will only increase this because more people will be relocating for these jobs – which always translates into upward pressure in real estate.

How Foreclosures Benefit the Rental Market

How do foreclosures and rentals interact with each other, and with the real estate market as a whole? Well, when everything above is put together, we see a picture of a lot of people looking for affordable places to live.

Since rental prices are increasing, people will be looking for some relief from rising rates – which could very well come in the form of foreclosures being opened up to renting by investors who want to capitalize on more home foreclosures on the open market. This is especially pragmatic because buying foreclosures and profiting off of an appreciation in value – the traditional way to profit in a down real estate market – may seem less attractive than buying foreclosures and simply renting them out.

We expect higher numbers of foreclosures to provide additional supply in a tight rental market – meaning more families will have more opportunities to find affordable housing, particularly in metropolitan areas. For investors, all of that translates into enormous potential.

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