A slow and low Winter of homes for sale tends to lead to a blossoming of inventory and a more active market in the warmer months. But this year seemed to be the exception; especially for the DC area.
Local real estate experts say that a healthy market should have around a six-month supply of inventory, but this year there is less then a two-month supply in the DC market. Based off 2012 numbers, DC inventory has dropped 27% and it has affected all price ranges and housing types. The inventory segment to be hit hardest by lackluster supply are the lower-priced starter homes, which are down 42%.
What does this mean for real estate agents in the DC area?
Lower inventory means higher prices which are scaring away first time home buyers like millennials and keeping them in the rental game. Because of this the multi-family market is seeing a huge boost.
Multi-family inventory saw a 3.6% increase last year – greater the national average of 2.4%. And, with over 4,600 units permitted in 2016 – the second highest and only exceeded by the record breaking 2015 – this new inventory has helped keep rents under control with a slim 2.6% year-over-year increase in rents – compared to 4% nationally. These numbers renting a viable option for those priced out of the competitive sales market.
Now that we’ve hit the Winter season once again, only time will tell whether or not the market can swing back around in Spring 2018.
How can agents capitalize on this strong rental market?
The Rental Beast platform provides the perfect addition to any real estate professionals business portfolio. We have the largest database of listings in the DC area including the MLS and other local sites that our Rental Beast ninjas have meticulously searched for, acquired, and added to our platform with the all information you will need to help your clients. Our platform provides several avenues to help agents market themselves and generate rental leads in the DC area.
Rental Beast agents live by the mantra that all rental leads are future home buyers. By building that relationship now handling their rental search, you ensure that when they decide to purchase in the future, you will be the first person they call.
The Boston Foundation reports in their annual Greater Boston Housing Report Card that while it is true that new housing is being added in the Greater Boston area, the majority of the units are in the city of Boston itself and in just a few surrounding cities while towns in the suburbs are seeing little to no construction.
Young and working families are finding it difficult to afford to live in the city but since housing prices are increasing in the suburbs because of a lack of new construction these families are left with few options. Only a handful of towns have added noteworthy amounts of housing, including Weymouth, Framingham, Plymouth, and Sharon. Out of about 13,000 building permits that were issued this year for the entire Greater Boston area, about 40% of those were issued by the city of Boston.
Although some believe that housing prices may inhibit economic growth, schools and jobs in the area continue to attract students and professionals every year. Rent prices are also slowly falling as a direct result of the additional housing that has become available.
As the millennial generation continues to head-butt its way into the housing market, credit scores are creating a sizable burden on their ability to purchase a home. A recent Rent.com survey stated that 78% of the millennial generation renters do not plan on buying a home soon.
Many cite the benefits of renting as their mainstay against home buying. However, in a recent TransUnion survey, 43% of those aged 18-34 blame subpar credit scores.
So why aren’t millennials buying houses?
Inability to obtain a fair mortgage and a general disinterest in buying. Credit score is the biggest hurdle for the younger generation, as most mortgages have a minimum requirement of credit score.
TransUnion found that one third of adults aged 18 to 34 have a credit score in between 300 and 600. A credit score of 620 will score you a mortgage, but anything lower is a crapshoot.
On average, millennials have a shorter credit history, which means there is more gravity in a missed payment as opposed to an older home buyer. Millennials do not have the cushion of a long credit history, so their mistakes are more prominent, resulting in lower scores.
Another thicket to cut through is the initial cost; the down payment. TransUnion found that nearly 60% of consumers aged 18-34 worry about obtaining a down payment. Coupled with lower credit scores, the task becomes daunting, forcing millennials to stay renting.
It will be interesting to see how the housing market adjusts to masses of millennials renting, and putting off their first home purchase.
Will home prices come down to make up for missed capital or will rents skyrocket and force millennials to reconsider?
There are quite a few steps typically required for any private landlord to procure a quality tenant: marketing, conducting showings, screening tenants, and preparing lease documents, among others.
While seasoned private landlords might even enjoy the aforementioned processes, many landlords would simply prefer their unit be rented in a timely manner by a high-quality tenant.
The most obvious obstacle for any private landlord in this situation is time. It can be significantly difficult to juggle a full-time job, schedule showings, conduct showings, screen tenants and prepare documents.
Furthermore, there is a certain level of expertise and experience that a private landlord might want to have before tackling the necessary steps towards attaining a new tenant. For example, if a landlord has never drafted a lease on his or her own, an experienced agent can step in and do this on his or her behalf.
Marketing rentals is also a facet of the procuring process that agents may assist with. Both verbiage and listing flow are critical components to successfully attracting tenants when marketing online, and rental agents know what has been tested in the marketplace and works.
While agents have mastered the use public listing sites such as Zillow and Craigslist, they also have access to the Multiple Listing Service (MLS), increasing visibility in ways the typical private owner simply cannot.
For screening purposes, Rental Beast provides both landlords and agents with a new ‘Apply Now’ function. Screening traditionally has been a burdensome process.
Now, landlords and agents have the ability to seamlessly screen tenants via Rental Beast’s online application and integrated partnership with Transunion. It is important to note that only private landlords are able to view sensitive application results, even if a given application was triggered by a partner agent on behalf of the landlord.
We at Rental Beast understand that private landlords, regardless of experience level, like to control the tenant selection process with varying degrees of firsthand involvement.
Rental Beast lends a landlord the flexibility to simultaneously market a property on his or her own, and receive agent assistance via the Rental Beast platform.
With Rental Beast, a landlord will only pay the brokerage commission once he or she has decided to accept a tenant procured by the agent and the lease is officially signed. In the meantime, landlords are able to proceed exactly as they were before. There is no upfront fee that will be collected.
We hope this post helps you, the private landlord, decide what avenue is best for both yourself and your rental property. Rental Beast can serve as a zero-risk solution that both maximizes visibility on your property and lends you the ability to receive agent assistance.
Is the American Dream of homeownership dying with Millennials, and do they even care? Will the proposed tax reform be the death knell?
Let’s start with a quick review of current housing market conditions:
- Homeownership rates are hovering around a five decades low.
- Low inventory rates are making it hard to find a house to buy; compounding this issue, rental inventory has become an increasingly appealing option for would-be buyers. It’s no longer hard to find a rental unit with the bells and whistles of a million dollar house… this makes it easier for would-be buyers to “park” in a rental and shop longer for that perfect house.
- Interest rates, by historic standards, are currently favorable for borrowing. Rates will almost certainly go up from here. Likely in 2018. This will make borrowing harder and will add to the debt burden of student loans (and credit card debt, car loans, etc.). This will hit Millennials particularly hard.
- At approximately 85 million people, Millennials are now the largest generation; they will have an increasingly large impact on the housing market as they reach prime buying age and Boomers begin to age out.
- Millennials have already started to take their position as the drivers of the housing market: 34% of all homebuyers today – by far the largest group of buyers – are Millennials. And, this number is expected to grow significantly in the next 3-5 years. Millennials already represent 66% of first time homebuyers, according NAR.
- The tax reform bill working its way through Congress will potentially eliminate the appeal of the mortgage deduction.
So, what does it all mean?
There does not seem to be any major change on the horizon that will improve homeownership rates in a meaningful way. This is doubly true given the increasing importance of Millennials in the housing market and the reality that most home ownership headwinds will hit Millennials particularly hard.
Expect a continuation of low homeownership rates. Sure, most of us still want to own a plot of land to call “home.” But, the decision to own versus rent has become increasingly blurry; there are attractive rental options to ride out the low inventory environment and buying is unlikely to get easier or more attractive from a purely financial perspective.
For real estate agents, they must understand and adjust. The message is simple: there is only one “housing” market. Increasingly, your clients will debate rent versus purchase. You need to be able to service both options. Many real estate agents seem to understand this. They are starting to service the large and growing renting population in order to build long-term relationships with future home buyers; agents are also using rentals to diversifying their commission revenue during a softer sales cycle, especially agents who are new to the business.
Let me leave agents with this: as part of its 2017 housing trends report, Zillow found that 57% of first time buyers considered renting and 50% of all eventual renters considered buying.
What do you see when you read the tea leaves?
The following is some additional information for readers intended to help assess whether home ownership rates may rebound in a meaningful way:
In 2017, national housing inventory hit some of its lowest levels on record. According to Trulia, the number of homes on the market dropped for eight consecutive quarters leading up to Q1 2017, falling 5.1% over the past year. Across different housing segments, starter and trade-up home inventory fell 8.7% and 7.9% year-over-year nationally. Meanwhile, the stock of premium homes remained relatively unchanged since last year, having fallen just 1.7%.
The disproportional drop in inventory of starter homes is driving home prices higher, which in turn makes homeownership less affordable.
Interest rates have been hovering at or near historic lows for the past few years. Buyers – especially first-time homebuyers – should be very motivated to borrow at today’s rates. However, credit has tightened and borrowing a mortgage requires much higher credit scores and larger down payments.
Interest rates seem to be on an upward trajectory, likely impacting buyers in two meaningful ways:
- Mortgage rates will increase, which makes any purchase and carrying cost, more expensive. This will compound an already high price environment caused by tight inventory constraints (more on this later).
- Student loans are paralyzing millennials. More than two-in-five (42%) millennials between 18-29 years old report that they, or someone in their household has student loan debt. 58% of college graduates report having student debt according to a recent Harvard IOP study. The more expensive it is to service that student loan debt, the longer it might postpone the home buying decision.
The tax reform currently being proposed by congress will cap – and all but eliminate – the mortgage interest deduction. Given the increased standard deduction ($12,000 for single and $24,000 for married taxpayers), many more taxpayers will forgo itemizing and take the standard deduction. The mortgage interest deduction is perhaps the single largest tax deduction folks make on their personal income tax return each year. Losing that benefit could present a serious disincentive to becoming a homeowner.
Residential rental properties, like owner-occupied housing, currently receive tax subsidies under existing tax rules, but the newly proposed tax plan significantly shifts the tax system to favor rentals over owner-occupied homes. This could result in increased cost of home ownership and lead to more people deciding to rent. The dramatic increase in the relative tax advantage for residential rental real estate could lead to increased home rentals in your neighborhood. Maybe it will be cost-advantageous to sell your home to a residential real estate firm and lease it back?
Finally, if the mortgage tax deduction is eliminated, Moody’s Analytics estimates that it could cause home prices nationwide to drop between 3-5%. This would likely further tighten inventory as sellers will likely balk at accepting losses in the near term.
According to the census bureau, the muted housing recovery in recent years can be traced, in part, to slower household formation among young adults; analysis suggests that the boom and bust in housing has been a key factor. Recent weakness in household formation relative to population growth among young adults represents a reversal of the unusual strength during the boom years. The net effect has left shares of current young adults heading households at levels similar to those in the mid-1990s before the housing boom.
Headship and Homeownership as share of age group population
Most of the focus on AirBNB stems from the money lost from a lack of taxation, an estimated $15 million from around 592,000 guests in Massachusetts last year. However, while other lodging establishments need to adhere to a strict set of municipal regulations, the owner of a unit on AirBNB currently does not.
State Representative Aaron Michlewitz recently proposed a bill that would impose safety and insurance regulations on top of taxing units, stating: “The taxation without the regulation piece is where the debate stands now”.
While some municipalities are waiting to see what the state decides to do, the Cambridge City Council has already voted to impose their own regulations on AirBNB rentals. Only hosts who live in the same or adjacent building would be allowed to make their units available. These units would need to be registered with the city and concede to inspections once every five years.
This would allow owners to continue to collect income from short-term rental units while ensuring guest safety. The new restrictions will take effect in April 2018.
It’s estimated that about 90,000 guests used AirBNB to find accommodations in Cambridge last year.