According to CNBC, “Low rental supply coupled with ongoing demand pushed up rents in September,” said Molly Boesel, principal economist at CoreLogic. “Vacancy rates have fallen moderately on the national level over the last quarter – with a 0.3% decrease in the third quarter of 2019 compared to a year earlier – and more significantly in select metro areas.”
In the United States, the cost of a single-family home has steadily gone up in the past few years. This includes prices for entry-level homes, which here in Utah, has risen up to about 330k.
As an investor, I’m sure you’re also aware that as demand increases, so does the price. So as the average cost for a single-family home increases and larger and larger percentages migrate toward the rental market—the price to rent a single home is rising dramatically.
Phoenix
“Phoenix, Arizona saw the biggest drop in vacancy rates, to just 2.6%. That in turn pushed rent growth to 6.7% annually. Phoenix has seen very strong job growth and is attracting new employees to the area.”
“The number of homes available for less than $1,250 per month has dropped 40% since 2013, according to Capital Economics. This despite huge growth in the single-family rental sector during the foreclosure crisis.”
Impact on Investments
If you own a single-family home, all this news is great. The only problem there is what happens when the market eventually shifts back down? If you’re vacant on that single property, you’re 100% vacant. When looking to capitalize on both current and future demand, multifamily serves up the best of both worlds…
As supply for these homes fills up, many renters turn toward condos, duplexes, fourplexes, etc. If you happen to own one of these multifamily units, and the market eventually shifts, and through a sad turn of events a renter or two leaves! Guess what, your fourplex isn’t 100% vacant.
“One implication of fewer affordable homes to buy or rent is that household formation is likely to slow,” wrote Matthew Pointon, property economist at Capital Economics.
By turning toward multifamily instead of a single-family market, you’re hedging the risk of vacancy by investing in a more recession-resistant asset.