NRS BLOG
If you are either looking to invest in U.S. real estate for the first time or a seasoned rental property investor, 2020 seems to have set the stage for 2021 to be the year in which you grow your rental investment strategy. On the one hand, rental demand and rental prices remain strong, and on the other, record-low mortgage rates facilitate home purchasing and are driving up prices.
According to Corelogic’s Home Price Insights Report, home prices appreciated 8.2% nationwide in the last twelve months and will continue to appreciate during 2021.
This substantial price increase was caused by the combination of a historic reduction in the inventory of homes for sale, and the simultaneous record-low mortgage rates available.
In CoreLogic’s words:
“Home price growth remained consistently elevated throughout 2020. Home sales for the year are expected to register above 2019 levels. Meanwhile, the availability of for-sale homes has dwindled as demand increased and coronavirus (COVID-19) outbreaks continued across the country, which delayed some sellers from putting their homes on the market.
While the pandemic left many in positions of financial insecurity, those who maintained employment and income stability are also incentivized to buy given the record-low mortgage rates available; this is increasing buyer demand while for-sale inventory is in short supply.”
Home buyer demand is expected to remain high throughout 2021, driven once again by low mortgage rates and possibly by further stimulus initiatives. According to Freddie Mac, mortgage rates in January 2021 decreased by one full percentage point when compared to a year ago, creating further opportunities for homebuyers.
On the other hand, 2021 begins with a continued drop in home inventory. This decrease in home inventory, however, is expected to ease as we advance into the new year, given two main reasons:
A continued home price appreciation also increases down-payment requirements, forcing lower-income families and households hardly hit by the pandemic into rentals. Leaving homeownership aspirations out of reach for many.
As a result, a recent article in the Wall Street Journal points to a boom of single-family build-to-rent properties in the past year, as investors bet for a continued increase in rental demand. During the 12-month period ending on September 30, 2020, over 50,000 rental homes were built.
After all, a high rental demand in the U.S. is nothing new, as housing is an intrinsic need. Down-payment requirements have long been high for low-income households whose savings capacity is rather limited even under normal circumstances; not to mention when being hit by a pandemic. In addition, residential rental price has increased steadily over the last 50 years, regardless of interest rates and economic cycles.
Thus, rental home investments are an excellent way of diversifying your portfolio in 2021, given you find the right properties and a reliable local partner to manage them.
Sources:
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