Posted On September 30th, 2022

The cost of a home is at an all-time high in the United States. According to the National Association of REALTORS®, the median home price increased by 15% from last year.

But how exactly is this housing market impacting millennials and Gen-Z? Millennials are currently the largest generation in terms of population size in the country. The median age of a homebuyer was 45 this year, compared to 31 in 1981. As homebuyers get older and older, other milestones, such as having kids, getting married and retiring, also end up getting pushed back.

Millions of Americans are wondering if they’ll be forever renters. In fact, “18% of millennial renters say they plan to rent forever” (up from 11% in 2018), according to research from Apartment List. This is excellent news if you’re a real estate investor, but not so much if you’re the average American trying to buy a home. Forever renting could lead to a massive shift in the housing market for investors. It is very possible that the earning potential for real estate investors will only increase year over year.

What caused this challenging housing market?

There are six reasons for the rise in the cost of housing.

• Volatile shifts in mortgage rates.

• Low housing inventory.

• Rise in cost of building materials.

• Gas prices.

• High inflation.

• Corporations and all-cash offers.

At the start of the pandemic, the real estate industry saw historic low interest rates of 2.65% in January 2021, which continued until 2022 and then spiked to 5.78%. Inventory for housing couldn’t keep up with the demand, and then the issues with the supply chain caused an increase in the cost of materials to build homes. Americans are now experiencing the highest rates of inflation in 40 years and the most expensive average gas prices across the U.S. All this has created the perfect storm for making it extremely difficult to buy a home.

Since the pandemic, the real estate industry has also seen a steep rise in corporations bidding on single-family properties with all-cash offers. These massive buyouts have priced out many Americans. The median home price has risen about 30% in the last decade, while incomes have only risen 11% in the same span of time. These corporations are buying homes to flip into rentals and Airbnbs, which is creating an imbalance for available units to buy.

How will forever renting change the industry?

1. Impact On The Economy

A housing dynamic of forever renting will have ripple effects on the economy. Homeownership is considered one of the most significant investments people make to build wealth in this country, so it’s not hard to imagine someone reaching retirement age and having an added cost of rent instead of a paid-off mortgage, making it more challenging to make ends meet. Pairing the current housing market with inflation will ultimately stall people’s ability to save money. According to The Economist, “Americans are saving less than at any point since the financial crisis.”

On the other hand, being a landlord will only become more lucrative. More renting will lead to increased demand for more investment properties, resulting in higher profits for real estate entrepreneurs. Wealth will tend to increase more for real estate investors versus others.

2. Demand For More Leasing Agents

If the U.S. continues on an upward trajectory for renting, there is a chance we’ll see an increase in leasing agents. Several skills will be in demand that leasing agents can offer to renters, such as helping renters find exclusive apartments within budget, going over leases to ensure renters get the best deal and helping renters find rent-controlled units. In 2022, renters are competing with a restricted supply and high demand, leading to upward pressure on rents. According to research from Realtor.com®, in 2022, it’s expected that rent will reach a 7.1% growth rate in the next 12 months.

3. Increase In Real Estate Digital Innovation

I believe the demand for digital innovation for renting will be necessary. Unfortunately, the real estate industry has been historically slow to adopt technological changes, but with the major shifts in the market, now is the time to start preparing to ensure bottom lines aren’t impacted. Real estate professionals have access to a plethora of property technology tools. The rental industry can now handle high volumes of rental applications and have a digital touch point on every stop of a renter’s journey, from listing to signing the lease.

4. Rentals Becoming More Common On Multiple Listing Services (MLSs)

Currently, many rental properties handled by agents don’t end up on an MLS, which functions as a single source of truth to govern all real estate listings in a specific local area. The high demand for rentals and increasing number of forever renters means that MLSs should rethink how they are treating rentals. Having more rentals on the MLS should result in:

• Transparency on rental price and availability.

• Reduction of fraudulently listed rentals.

• Increases in compensation for real estate agents.

• Standardization of rental data.

• Improved processes to meet the needs of a high influx of renters.

There are more than 800 MLSs that serve real estate brokerages across the U.S. $2.4 billion commission is potentially being lost over time as a result of not including rentals on MLSs. Once rentals become common on MLSs, this will become a massive financial opportunity for everyone in the real estate business.

It’s essential for real estate professionals to have a pulse on these issues so they can start developing plans on how to address them. Given Gen-Z’s proclivity toward tech, professionals should push themselves to embrace technology and find ways to cut down on the time and effort spent on actual and proverbial paperwork by bringing the process to renters’ computers and mobile devices. This will encourage renters to work with them and better appreciate the skills they bring to the table.

Original Post: How 'Forever Renters' Are Changing Real Estate As We Know It