There’s no doubt about it: the 2018 housing market has seen its ups and downs.
The year started with sky-high home prices, historically low mortgage rates and a definitive upper hand for sellers. In recent months though, home price growth has faltered, rates have risen to their highest point in nearly eight years, and favor has started to shift from seller to buyer.
Will these trends continue? Will housing experience the same wild ride in the new year? Here’s what experts predict will happen in 2019 real estate market:
Mortgage rates will continue rising.
“Despite steady climbing for the past two years, mortgage rates remain lower than they were during most of the recession and below average for the type of strong economic growth we’ve been experiencing. That will change in 2019, as the 30-year, fixed rate mortgage reaches 5.8% — territory not seen since the dark days of 2008 when rates were racing downward in response to the housing crisis.” — Aaron Terrazas, director of economic research for Zillow
Millennials will keep buying homes — despite those rising rates.
"The housing market in 2019 will be characterized by continued rising mortgage rates and surging millennial demand. Rising rates, by making housing less affordable, will likely deter certain potential homebuyers from the market. On the other hand, the largest cohort of millennials will be turning 29 next year, entering peak household formation and home-buying age, and contributing to the increase in first-time buyer demand.” — Odeta Kushi, senior economist for First American
“Millennials will continue to make up the largest segment of buyers next year, accounting for 45% of mortgages, compared to 17% of Boomers, and 37% of Gen Xers. While first-time buyers will struggle next year, older Millennial move-up buyers will have more options in the mid-to upper-tier price point and will make up the majority of Millennials who close in 2019. Looking forward, 2020 is expected to be the peak Millennial home buying year with the largest cohort of millennials turning 30 years old. Millennials are also likely to make up the largest share of home buyers for the next decade as their housing needs adjust over time.” — Danielle Hale, chief economist for Realtor.com
This graphic shows the role Millennials will play in the 2019 and 2020 housing markets. COURTESY OF REALTOR.COM
Home buying power will decrease, but that could be a good thing.
“Most homebuyers budget a monthly payment. As rates rise, a fixed monthly payment translates into less borrowing capacity and buying power is down about 10% since the same time last year. As there are less buyers at each price point, the appropriate market response is a slowdown in sales and an easing in price momentum.” — Tendayi Kapfidze, chief economist for LendingTree
Overall home sales will drop.
“As we look toward 2019, we are anticipating home sales to decline around 2%. We’re expecting it to be another slightly slower year as buyers continue to wrangle with higher mortgage rates after contending with several years of rapid price growth.” — Ruben Gonzalez, chief economist at Keller Williams
Inventory troubles will ease — not too much, though.
“The wave of first-time home buyer demand will be met by somewhat higher inventory levels than in 2018. However, while the days of multiple offers and bidding wars may be history in some markets where inventory is increasing, inventory will likely still remain tight nationally through 2019." — Kushi
“In the majority of markets, the number of homes being put on the market or newly constructed has increased slightly, while the pace of sales has slowed slightly, which has helped stop the inventory decline. But the inventory increases or slowing price increases necessary for a more widespread sales gain are not forecasted to happen in 2019. While the situation is not getting worse for buyers, it’s also not improving notably in the majority of markets.” — Hale
This graphic shows housing inventory predictions for 2019. COURTESY OF REALTOR.COM
Home price growth will continue to slow.
“Right now, for 2019, we believe home price appreciation will likely slow to near 3%. This is based on the assumption that the recent pattern of increasing inventory levels will be sustained in the upcoming year.” — Gonzalez
Buyers will see less competition, but that might not help first-timers.
“Buyers who are able to stay in the market will find less competition as more buyers are priced out but feel an increased sense of urgency to close before it gets even more expensive. Their largest struggle next year will be reconciling wants, needs and budget versus the heavy competition of 2018. Although the number of homes for sale is increasing, which is an improvement for buyers, the majority of new inventory is focused in the mid- to higher-end price tier, not entry-level.” — Danielle Hale, Realtor.com
National rents will rise, but apartment construction could ease renters’ pains.
“As higher rates limit the number of homes that potential buyers can afford, some would-be buyers will be too financially stretched to buy and will continue renting. As a result, recent (and very slight) drops in rent will reverse and turn positive again. The shift will be muted, however, by continued steady investment in apartment construction, which will prevent rent growth from shooting too far above income growth.” — Terrazas
NYC rent hikes will continue — thanks to Amazon.
“Overall, I think the beginning of 2019 will be relatively flat, with price increases in Q3, Q4 and into 2020. The period between the old 421A and the beginning of affordable New York was a window of time where there wasn’t a tremendous amount of rental development. During that time it was difficult to build rental developments due to the escalating land and construction costs, no tax incentives, etc., creating a shortage of new product. Today, not only have some regulations changed, but the economy is doing well, unemployment rates are down, a lot of jobs are being created here in New York – not only by Amazon but everything that comes along with Amazon and all of the corporations looking to be close proximity to their headquarters. When we see the economy doing well, we can expect rental prices to increase.” — Andrew Barrocas, CEO of MNS
Individual and institutional investors will battle it out.
“Well-funded institutional buyers have tremendous advertising budgets and their spend makes it impossible for the average real estate investor to compete. It takes a serious financial investment to fund a marketing campaign that accurately targets and identifies acquisition opportunities. That alone gives institutional investors an instant advantage. Additionally, interest rates are increasing, which not only impacts buyers who cannot afford to move, but also individual investors looking to borrow money to buy and hold rental properties. Their cost to borrow increases while inventory decreases and competition grows. This type of combination middle-market is one individual investors do not want to see.” — Brian Spitz, founder of Big State Home Buyers
Commercial property managers will hop on the shared space bandwagon — or bring in top amenities to make up for it.
“As co-working continues to be a disruptor in commercial real estate, the largest traditional landlords have opened their own flexible and co-working options to compete, such as Sage Realty's Swivel and Boston Properties' Flex. Landlords who are remaining or returning to the traditional commercial office space are facing increased demand for amenities like sleek lobbies, tech services, etc. To meet these demands and gain a competitive edge, landlords are opening up to fintech/insurtech solutions like replacing security deposits with surety bonds to make tenants lives easier.” — Julien Bonneville, CEO of The Guarantors
Technology will continue to disrupt the industry.
“Technology disruption of the real estate industry driven by Silicon Valley and institutional investors will reach a point where it’ll threaten the traditional real estate industry. Technological innovation is here and rapidly advancing in the real estate industry and preparing for disruption. iBuying, blockchain, artificial intelligence and machine learning are changing the ways buyers, sellers and investors interact with each other and the properties they are interested in.” — Spitz
This graphic shows the top technologies experts predict will be adopted in 2019. COURTESY OF FIRST AMERICAN
The Moral of the Story
All in all, housing is set for a slow-down next year, but as Kapfidze explained, that’s not necessarily a bad thing.
“The medium and long-term prospects for housing are good because demographics are going to continue to support demand,” he said. “With a slower price appreciation, incomes have an opportunity to catch up. With slower sales, inventory has an opportunity to normalize. A slowdown in 2019 creates a healthier housing market going forward.”
Article by Aly J. Yale--Contributor for Forbes. View original article here
When you scan the internet for 2019 real estate trends, you'll find a lot of different opinions about what the year will bring. However, one consistent theme is that we will start to see more and more millennials purchase homes. Whether it is because they are aging or feeling more financially stable, there’s no doubt that this generational powerhouse will be a large influence in this year’s real estate space. In fact, some experts are anticipating that 34% of this generation — currently encompassing some 70 million individuals born between the early 80s and mid 90s — will buy a home in the next five years.
At face value, this means that real estate agents and real estate marketers will need to shift their focus to sell homes effectively to a generation that has previously baffled them. Finding their pain points, addressing them and finding exactly what will create that tipping point toward a purchase will keep this group on their toes. Understanding the millennial propensity to seek information from peers and online first, their “recession mindset” and other unique traits will be important for selling real estate.
But one question that hasn’t been explored in the face of this trend is how millennials “growing up” and purchasing homes will affect the rental market. It makes sense that property managers and landlords will start to shift their focus to the next up-and-comers: Gen Z.
Rental Properties And Gen Z Tenants
With the oldest individuals in Gen Z entering their 23rd year in 2019, this generation represents the next wave of renters. If you’re wondering why this is a big deal, trust me — this generation is unlike any we’ve seen before and their demands surrounding rental properties and amenities will be just as different.
If you are a landlord or investment property owner/manager, it’s important to have a baseline understanding of what’s driving these teens and young adults in order to prep for your next group of renters.
They are consuming digital media differently.
We can’t simply apply the rules we’ve finally established for millennials to the following generation. Gen Z is consuming media in a way that’s all their own, using different social media platforms and watching drastically fewer hours of traditional TV. If you are marketing a rental property, you will need to find ways to meet them on their own turf via online video content and not through television advertising. Messages need to be fast, easily digestible, and ready to share with others. This generation likes to interact with their peers and share information and values the human connection in addition to online sources when making housing decisions
They are tech dependent.
These digital natives have never known a world that isn’t completely, immediately connected. They want every aspect of life to be easily accessible through their smartphones. This means as a landlord or investment property owner, you need to take a close look at how you’re interacting with your tenants. They will demand electronic interactions for regular tenant activities like paying rent, filing maintenance requests, basic communication with the landlord and accessing services like purchasing renters insurance.
They are frugal.
A recent Business Insider survey showed that, even though this generation is still very young, some already believe that one of the most important issues that they will have to deal with is the economy and debt. Because they have grown up during a global economic crisis, and in the shadow of the relatively “poor” millennials, they will tend to worry about money. This mindset might make them value affordability over extra square footage or unnecessary amenities.
They want to participate and co-create.
From creating vlogs to launching their own video channels, this generation has had tools at their fingertips from the get-go to be creative in major ways. This experience of participation and creation is part of who they are, and it stands to reason that this will spill out into other portions of their lives as they begin to enter adulthood. If you own a rental complex, consider amenities that bring people together to help create culture, like group art projects, community events and contests.
As real estate trends start to take shape for the coming year, property investors and landlords would do well to take a look at how those trends may affect the rental market. The biggest change on the horizon is the coming-of-age of Gen Z, and understanding their needs can mean the difference between a vacant property and a profitable one in the years to come.
Affordable? Check. Spacious? Not so much — but this renter packs the personality into an antique rental in the heart of Seattle.
When Lola Simmons and boyfriend Garrett Moore began looking for an apartment in Seattle’s Capitol Hill neighborhood, they were hoping to spend around $1,400 on monthly rent. So when the pair found their dream spot for just over $1,000 a month in Seattle’s infamously difficult rental market, they knew they’d struck gold.
“I walked in, and after about two minutes, I said, ‘Yep, I’ll take it,’” says Simmons.
From there, the process was easy, and the couple experienced little surprise throughout their move-in — besides an out-of-commission antique freight elevator on move-in day.
We sat down with Simmons to discuss how she found the perfect rental and how she’s made the cozy 500-square-foot space into a home over the past three years — including turning the walk-in closet into a bedroom.
How did you find this place?
Garrett’s good friends lived here, and they were moving out. They were looking for someone to take over their lease.
So after the lease was up, you renewed? Did the price change?
Yeah. When we moved in, I think it was $1,050, and when we renewed the lease, it went up to $1,245. Now it’s $1,270.
And what about utilities?
They have a set rate included in the rent, which I thought was a unique way to do it. The only thing we pay for is electricity, which is about $40 every three months or so.
Other than it being a great deal, what else drew you to this place?
I’ve always wanted to live in this building, ever since I moved to Capitol Hill. Everyone’s lived in this building. It’s kind of special.
I think it’s so cool that every apartment in this building is different. Each one has its own character. Even if you go into another one with the same layout, it’s still totally different. Some flooring is different or the tile in the kitchen. It’s really interesting.
When the old building manager was here, he’d leave the doors unlocked for me so I could go into the empty apartments and look at the different layouts.
It can be easy for a rental to look basic, but you’ve totally personalized yours. How did you make your space unique?
I’m drawn to that ’70s palette that’s really saturated and drab, and also those really bright ’80s colors. I’ve acquired a lot of stuff. I think as much as I’d like to be a minimalist, I like to have stuff.
We’ve got a lot of plants, and I think tending to those is really fun. Learning about them, making it cozy for the cats — there’s really nowhere in here they can’t be.
Having a lot of music and books and colors everywhere was really something that I was working toward, and I just really love the junk stores, so I go and buy a bunch of stuff. It scratches the itch, you know?
It’s hard for me to understand why people would spend a ridiculous amount of money on stuff. I like to mismatch stuff and make it work. It’s not as easy as buying straight from IKEA, but you’re not going to find the same stuff in someone else’s house. The thrill of the hunt is important to me.
Garrett has a lot of worldly things like instruments and things from his travels, and it definitely goes with my stuff, but it makes it feel more cultured.
Other than sourcing interesting items, what’s been your greatest challenge with your apartment?
There have been a lot.
The outlets. It’s an old building — it was built in the early 1900s, and you have all these gadgets today. From our living room outlet, we run a cord into the closet, which is also the bedroom, so we can charge our phones at night.
When we first moved in, the only outlet in the bathroom was the one attached to the light fixture. It was blown out when we first started living here, so I had to blow-dry my hair in the living room.
When we moved in, I had a queen-size bed, and basically it was sandwiched in there with the edges coming up on the sides against the walls. We ended up getting a full-size bed, and it fits perfectly — exactly. I mean, if the bed was a quarter of an inch bigger it wouldn’t fit.
And then storage is a huge challenge — making it look like it’s not just a bunch of stuff everywhere. We have a lot of under-the-bed storage. You have to get really creative.
So what do you want out of your next rental?
I really want a bathroom that has a huge clawfoot tub with a lot of natural light. An actual-sized bedroom, to be able to walk on either side of the bed, maybe have a nightstand. And I just want a really big kitchen.
Despite what it lacks in space and outlets, how do you feel about your apartment?
My childhood was all over the place, and we moved around a lot, and I never had that sense of “home.” We’re entertaining the idea of moving to California because of the seasons — it gets kind of hard when it gets cold and gray.
I’ll be really sad to leave this apartment. It’s honestly the first place I’ve lived that I’ve really, really loved.
Lola’s tips for small-space living on a budget
1. Live with a complementary partner
I think if you’re going to live in a small space, you have to really have a plan about responsibilities, because they pile up. And he pretty much lets me have my way when it comes to design, which is good.
2. Get creative with storage solutions
A lot of that isn’t stuff that comes to me right away, but I experiment by moving stuff around and asking if it’s functional — is it in my way? Does it serve the purpose I’m looking for?
It sometimes takes a long time. It’s a lot of measuring and returning things, and it’s not always easy, but I think it’s rewarding. I feel really accomplished when something fits perfectly.
3. Let your space evolve
I’m not very patient whatsoever, but something I’ve learned is that when you don’t have a large budget or you shop the way I do at secondhand stores, you have to be patient. You don’t know what they’re going to have.
You also have to cycle things out. Our free pile in this building is great — I’ve gotten so many cool things from that.
4. Look for unique ways of acquiring items
I got a table from the free pile, and the top was really worn down, so I was going to sand it and restain it. But once I sanded it, I realized it was particle board, so I returned all those supplies and got paint. I also added a shelf below it to put my blankets in.
I think repurposing things and making sure they fit with all your other stuff is the trick. There’s a bunch of other shelves in here I painted the same color with the rest of the paint. They were different colors, and it looked kind of weird, so I but painted them orange.
You work with what you have. I think it’s really fun, because I like DIY projects. Being able to think of what you want and then create it with a really small amount of money is really pleasing to me.
5. Measure the benefits against the costs
Our security deposit was only about $300, so if we did want to repaint at any point, I might consider taking that hit. You want your space to look the way you want, you know? It’s a lot of work, though, to paint a whole room, so I’d have to really think about it.
Photos and article by Callie Little with Zillow Porchlight. View the original article here.
Mountain States Appraisal's Moe Therrien presented the following update at the 2018 IREM (Institute of Real Estate Management) Multi-Family Housing Luncheon utilizing information compiled by Valbridge Property Advisors. Occupancy remains very high while vacancy rates continue to fall. With the tremendous growth we are seeing and record numbers of new residents, this is a trend that promises to continue.
The NMHC, in partnership with the National Apartment Association, recently launched the Vision 2030 campaign. This new educational and public relations effort focuses on the strong and growing demand for apartments from now through 2030.
One of the program’s foundational pieces is a new research report, produced by Hoyt Advisory Services, that offers a serious, academic examination of the factors that will drive the sustained demand for apartments over the next 13 years.
Here’s the upshot: We’ll have to build 4.6 million new apartments between now and the end of 2030 to keep up with growing apartment demand—or risk exacerbating today’s existing housing shortage.
That means delivering an average of 325,000 net new units each year, after accounting for the estimated 125,000 units or so we lose every year to old age and obsolescence. For comparison, the industry has averaged just 225,000 completions per year over the past five years, which have been some of the most robust many of us have seen in our careers.
Increasing production in step with estimated demand is a giant challenge. While there will be jurisdictions that will be more accommodative of the kind of growth and development needed, there will be others where this will be hard to achieve.
Barriers to Construction
As part of our research, we also released the Barriers to Apartment Construction Index for 50 metro areas. Taking into consideration local regulations, available land, and other factors, this new tool scores the metro areas by difficulty of building new apartments.
The index ranges from 19.5 in the most-difficult market in which to add apartments (Honolulu) to -5.9 in the easiest (New Orleans). Any score above the median of 1.8 means it’s harder to add new apartments in a specific metro compared with other metros.
But it isn’t just the labyrinth of local regulations and policies (such as land-use restrictions, zoning laws, entitlement processes, fees, and so on) that stymie the production of apartments. Just as problematic can be NIMBY opposition. These antigrowth proponents can be vocal and aggressive in blocking development and redevelopment if they feel new development threatens their way of life.
And the NIMBY pressure can be intense. Even well-intentioned policymakers, including mayors, city council members, and the like, often retreat from sensible plans to make their jurisdictions more livable and attractive to new businesses and workers because the level of NIMBY noise is overwhelming.
Ironically, once a new apartment community manages to make it through the often excruciating approval process, frequently these same antigrowth zealots are among the first to line up for apartments for their children. While they oppose affordable housing for their communities’ vital workers—teachers, first responders, health-care workers, retail and restaurant employees—they also hypocritically want their children to have access to apartments that are both affordably priced and reasonably close to home.
This exclusionary mind-set, which some go so far as to call “dream hoarding,” is detrimental not only to housing affordability, but also to communities’ fundamental social and economic health. In fact, it has already crippled many cities across the U.S., most notably in California, where NIMBYism has successfully created a huge disparity between the supply of and demand for affordable rental housing.
Partners for More Production
But even in localities where harmony exists between apartment developers and local residents, the magnitude and complexity of the challenge of meeting the upcoming demand for apartments is still too big for the private sector to take on by itself. We need the local, state, and federal governments to be our partners in meeting the growing apartment need.
To provide a starting point for discussion and collaboration, we’ve also published the Vision 2030 report, which presents a toolbox of approaches that states and localities can use to address the apartment shortage and help reduce the cost of housing. The toolbox presents four broad strategies:
(1) Adopt public policies and programs locally to make housing affordability more feasible. From “by-right” development and expedited approvals to reduced parking requirements and density bonuses, there are a number of policies and best practices that can help keep apartment development costs down.
(2) Increase public–private partnerships. Policymakers can provide incentives such as tax abatements or share risk with the private sector to produce the necessary units at price points households can afford.
(3) Leverage state-level authority to overcome obstacles to apartment construction. Sometimes this difficult process needs a boost, so some states, including Massachusetts, Rhode Island, and Oregon, have begun stepping in to override local zoning restrictions that inhibit apartment construction.
(4) Collaborate with business and community leaders to champion apartments. Without a diversity of housing options to meet a variety of lifestyle needs and price points, local economies will suffer. Local employers and community leaders need to be engaged to create a powerful force against NIMBYism.
Cities and communities that embrace this more-collaborative, we-all-win-together mentality will be the most successful in creating an environment where we can build enough new apartments to meet the need going forward. The repercussions of inaction on this front are great; if nothing is done, housing affordability constraints will continue to hold back our local, state, and national economies. A healthy housing market is critical for attracting both new businesses and new workers to communities.
For more information on this campaign, as well as access to apartment data by state, 50 metro areas, or congressional district, please visit www.WeAreApartments.org. The site also features the NMHC’s Apartment Community Estimator, an online calculator that values the economic impact of building and operating apartments in local communities, and printable fact sheets for your next meeting with local officials or state or federal lawmakers.
At the outset of 2017, most industry concerns surrounded a multifamily slowdown. Indices were falling, construction financing was becoming harder to obtain and many feared occupancy rates would drop nationwide as supply finally began to catch up with demand.
Those concerns continue to exist six months later, but the first half of the year wasn’t exactly doom and gloom.
Our State of Apartment Demand blog published earlier this year referenced the unsettling findings of the National Multifamily Housing Council’s Quarterly Survey conducted in Oct. 2016. The survey showed slowing across all four indices (market tightness, sales volume, equity financing and debt financing).
The trend for those indices hasn’t reversed, but it isn’t dropping any further. In fact, NMHC’s April Quarterly Survey showed modest growth among all four indices, although all remained below the breakeven point of 50. In short, the moderate improvements symbolize more of a plateau than a decline.
NMHC’s chief economist Mark Obrinsky said supply has remained in line with demand in Class A urban core markets, which has led owner/operators to increase concessions to spur lease activity. Even so, occupancy rates have remained at historic levels.
Another hint of a plateau was provided in April, when average nationwide rents grew only $3 to $1,314. In addition, the year-over-year rent growth from April 2016 was 2 percent, which accounted for the smallest growth since April 2011 (1.5 percent).
Other compelling industry trends at the midway point of 2017 include:
Multifamily construction loans are harder to find: Construction loans are not impossible to find, but banks have begun to be more deliberate about when and to whom they’ll offer a loan. And when banks do lend, it’s not always for the full amount of the development. While projects involving popular large developers continue to have few problems finding funding, midlevel and smaller developers are being met with more stringent loan restrictions.
Federal Reserve believes economy is strong, raises rates: For the second time in 2017, the Federal Reserve raised rates on June 15. The rise (25 basis points, to the range of 1 to 1.25 percent) reaffirms the Fed’s belief that the economy is strong enough for money to be more expansive – including real estate financing. Fed Chair Janet Yellen said the stabilization of the labor force participation rate signals a stronger job market, which helped lead to the unanimous vote to raise rates.
Amenity races ramp up: Possibly in response to the plateauing market, apartment communities have been raising the bar with regard to amenities. In a concerted effort to opt for usability and functionality, convenience-rooted amenities such as package lockers and bike storage facilities are among those being added to existing communities and also incorporated into the blueprint of new developments. Student housing developments in small spaces are especially aware of this trend.
In summary, while the apartment market might be weaker than it has been over the last few years, rents and occupancy rates remain healthy. Modest growth has been seen among major indices, and supply has remained in line with demand in certain markets. Overall, apartment operators who continue to market intelligently may not experience a drop-off of any sort based on the current trends. We will continue to watch the state of the industry and will provide another update in the next few months.
Commercial Northwest believes in investing in the community around us to build a stronger tomorrow. Each year we partner with Keller William’s Red Day and spend a day in the community (and away from the office) to serve worthwhile organizations and causes. This year we partnered with NeighborWorks Boise to help stain a fence at a new pocket neighborhood on the Boise Bench.
In 2009, Keller Williams introduced Red Day. This is a day dedicated to the year-round service initiative that Keller Williams puts into improving local communities. RED Day stands for Renew, Energize and Donate and is celebrated on the second Thursday in May each year. Projects range from rebuilding homes, refurbishing parks, donating to food shelters, hosting blood drives and so much more. Each project is selected based on the individual market and the need within each community. As Mark Ozman, an associate with the Indianapolis/Carmel Market Center, wrote:
“RED Day isn’t about cleaning up a park. It is a one-day expression of what happens 24/7 in the Keller Williams culture. It is seeing a need, discovering who can meet that need and then getting it done."
On May 11th Commercial Northwest and the Nancy Lemas Keller Williams Commercial team partnered with local company, NeighborWorks Boise to help stain a fence at a new pocket neighborhood. These pocket neighborhoods are designed with anywhere between 10 to 25 single family homes that are more compact for a close-knit community feeling. Neighborworks is a private non-profit organization (501(c)3) that helps home buyers purchase a home based on efficiency and reduced costs of living. They also provide grants for qualified first-time buyers, optional one-on-one pre-purchase financial counseling and home buyer education classes.
Volunteers from across the Keller Williams family met early in the morning at the future home of what Neighborworks is calling the Ormond Street Cottages, located off of Vista Ave in Boise. In total, about 30 volunteers helped stain the fence around this future community. For more information on this community and availability visit the NeighborWorks page here.
For those feeling the Red Day spirit, you don’t have to wait until next year in May to give where you live. NeighborWorks also sponsors Rake Up Boise in the fall. There is no shortage of community involvement in Boise and there are lots of worthwhile organizations working to continue to make the Treasure Valley the best place to live!
Tenant demand remains strong as home ownership declines. Property owners and investors should feel confident with asset performance. Among key demographic and economic drivers, job creation and household formation during 2017 translated again into positive net absorption of units. In 2017, projected job creation and rental household formation will support demand, while favorable demographic trends will also translate to low vacancy rates and steady rental increases.
The entrance of Millennials into the workforce remains a potent force in the multifamily sector as these individuals have a high tendency to rent. Nationally, the home ownership rate descended to a 51-year low of 62.9% last year and is projected to remain in the low 60% band in 2017. The low rate is not altogether surprising given the Millennial's desire to remain mobile as well as their burdensome student debt. In addition, a cultural trend towards later marriage and family formation should translate into sustained demand for rentals and extend for the next 10 years in apartments.
A peak in construction is expected in 2017. Issuing of permits has been leveled off as construction lenders are exercising discretion and critically assessing the experience of development teams. In addition to conservative permit proposals, construction employment in Boise rose 7 percent between March 2015 and March 2016, from 19,000 jobs to 20,300. The increase in apartment construction this year coincides with growth trends. Completions of luxury rentals will exert more pressure on the class A vacancy rate in 2017, while performance of Class B and Class C assets will encourage further reconsideration of investment strategies.
Some newer assets will benefit from strategic locations in nice neighborhoods While others will face competition from a wave of development. In Boise, although we are facing significant apartment additions, we also have a captive renter pool as home prices are elevated. Even with the addition of over 3,000 units to our market in 2017, the vacancy rate in the Treasure Valley has hovered between 2 and 3.5 percent for four years, according to Mountain States Appraisals in Boise. While the vacancy rate hovers below market equilibrium, it has given property managers the opportunity to increase rental rates. This is promising news for both owners and managers for the last half of 2017.
With the cost of living on a steady incline and the demand for rental housing being pushed to an all-time high, it is inevitable that landlords will need to increase rents to keep up with market trends. This is great news for owners as increased rents equals more income and can mean an increase in property value. There are factors to take into consideration when increasing rent on a tenant. If done correctly, you will limit high turnover and keep vacancy rates low.
Before increasing rents, evaluate your local laws to ensure that raising rent is an option. Some areas with rent control may not allow such an option. Other areas may only allow a specific percentage increase. It is important to establish that you are compliant with all federal Fair Housing laws as well. This means not raising rent in any discriminatory manner. If you’re unsure of your local and state laws here is a great resource.
Inspect the leases in your portfolio. Since you cannot raise rent on a tenant who is currently in a lease, look for leases that are going to expire so that rent can be raised after the expiration. Having a report with lease every expiration is the foundation of successfully increasing rates. Having too many leases expire in any given month can hinder your ability to raise rents without taking a vacancy loss.
If you are unsure of current market rates for your area, start by shopping the competition. Talk to local property managers in your area and find out how strong the market is. Call a couple properties and ask for a quick market survey to research what similar units are renting for.
Once you have completed market research, observed your lease terms, and confirmed compliance with federal and local laws the next step is to inform the tenant. The most professional way to start is to send a written renewal notice within 30-90 days (depending on what your state requires). Using a form letter that is already prepared can save you time and keep things organized.
This is a terrific opportunity to communicate with your tenant about any maintenance needs that the tenant may have forgotten to inform you about. You can offer incentives to the resident to resign a lease by offering a basic carpeting cleaning or small upgrades to the unit. Not every resident is going to be happy about an increase in their rent. Making it more palatable to tenants by including a benefit to the tenant will encourage them to resign a lease.
Small raises with each lease renewal is a much easier process than a substantial increase all at once. This is the best practice to soften the process for the residents and ensure you keep vacancies low.
The process of raising rent can be overwhelming to some property managers. Finding a balance between raising rents and keeping both owner and tenant happy is the best way to ensure that everyone is happy. Knowing the best practices for this and staying organized ensure that you are successful.