High demand and low supply are pushing thousands of would-be homeowners out of the US market. The imbalance leads analysts to believe that many homebuyers will be forced to look at the US rental market as an alternative. This opens up the potential for buy-to-let investment still further.
Before the pandemic, large parts of the US property market were already experiencing a shortage of supply. In some states such as Florida, single-family home listings were already well below demand. Since March, demand has grown even stronger and inventory plummeted.
The surge of demand hand in hand with the drop in supply has combined to make a tough market for homebuyers. Despite the appeal of the lowest mortgage rates ever, would-be homeowners are finding that banks have increased their lending criteria.
As a result, only those buyers who already have equity, a good credit score and a stable job are able to purchase a home. Even then, competition is fierce with listings selling in less than 50 days. And prices are climbing higher.
Prices push buyers out of market
Data from realtor.com for September found the highest median listing price on record. The average of US$350,000 across the nation last month puts added pressure on an already tight market.
According to Yahoo Finance, every increase of US$1,000 in house prices pushes 150,000 buyers out of the market. Faced with the reality of not being able to buy a home, many Americans are turning to the US rental market as an alternative.
Prices in US rental market
Unlike property prices, rentals rates across the US have remained stable throughout the pandemic. Summer usually heralds a spike in monthly rates, but this year landlords have preferred not to put prices up.
Data from Zumper showed little change in listed rates across the country generally in October. However, it revealed a drop in rents in the largest cities and an increase in smaller metro areas.
San Francisco saw the biggest drop with rental rates going down by 9.2% to fall to their lowest since March 2017. The data for the the seven largest cities showed that prices for 1-bedroom apartments fell by 10.4% in the year to September.
However, the US rental market fared better in smaller metros. In Florida, for example, rates generally went up. The metro area of Tampa saw rates for a 1-bedroom apartment rise by 5.3% and 2-bed apartments saw an 8.3% increase. In Jacksonville, the uptick was slightly higher for 2-bedroom apartments (8.7%) while 1-bedroom properties experienced a slight decrease (1.1%).
Outside, the Sunshine State, rental rates also grew. In Houston, for example, 2-bedroom rental rates went up by 2.8% in the year and 1-bedroom by 1.5%.
Potential for buy-to-let
With the big influx of new renters on the horizon, the US rental market offers excellent potential for buy-to-let investment. Properties in the best locations will see the highest demand as will those that offer outside space, private and communal.
BRIC Group offers investors a range of properties in key locations in Florida and Houston. Investment starts at just US$102,000 and the majority of buy-to-let investments come with 2-year rental guarantees. Yields range between 5 and 9% a year.
(Source: Yahoo Finance, Zumper)