AFFORDABILITY … the current buzzword of politicians, pundits and publishers!
In this issue, we’ll address affordability from the perspectives of both landlords and renters … clearly a complementary “team” as it relates to vacancy rates, rents and satisfaction of mutual housing needs as we enter the New Year. The by-product for both parties … predictability.
Quick Recap: Be sure to read or re-read our two previous articles … the first that deals with Renters and Rents; the second with an eye to residential rental market Predictability and long-term Bonus. Doing so will provide a foundation for our 3-part discussion on this issue:
Caution in Rent Increase Expectations
Fed Rate Reductions … Effect on Renters/Homebuyers
Relationship of rent price increases, home prices … vs. household income. A case for renting.
Rent Increase Expectations
Virginia’s unemployment rate has steadily creeped up from 3.6% in August of this year and is expected to increase to 4.1% by year-end. The Weldon Cooper Center cites economic policy and employment ties to the federal government as the driving factors.
That means that wage inflation may have peaked. For investors considering a rental purchase, it’s important to buy with caution as rent increases may not be available to buy you out of a bad deal.
Additionally, we’re seeing evidence of multi-family rent concessions/reductions on the upswing.
Fed Rate Reductions … If Any, Effect on Renters/Homebuyers
The question remains … will the Fed cut its rate and if so, what affect will that have on 30-year fixed mortgage rates? Clearly, a Fed rate cut does not have an immediate impact on reducing mortgage rates. However, such cuts have an influence by affecting the 10-year Treasury yield which is a key benchmark for mortgages.
Historically, a 100-basis point (1%) Fed rate cut has correlated with an 87-basis point (0.87%) reduction in mortgage rates. So, let’s look at what scenario might drive mortgage rates down to the point of significant motivation to drive homebuying. We’ll start with a current assumed 30-year fixed rate of 6%.
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Many forecasts from major organizations predict rates will stay above 6% throughout 2025 and likely to have minimum impact near-term 2026. That’s my take too.
Landlords: Rank predictability that mortgage rates will remain high and not impact
increased home buying in 2026 … on a scale of 1 -5 (highest).
A Case for Renting vs. Home Ownership
Rent prices have risen faster than household income … but far below the rate of home ownership.
Landlords: Rank predictability to rent rather than buy in 2026 … on a scale of 1 – 5 (highest).
2026 = 2025 Redux!?
For you and me, as present or planned residential real estate investors, the foregoing stats point to a marketing strategy that triggers attraction and retention of quality tenants. All of us, and renters too, make buying decisions based on 4 considerations. Will it:
Make Money
Save Money
Save Time
Peace of Mind
Landlords: Plan how you will position your property offerings to enjoy each of the above
while delivering affordability to attract and retain quality renters.
Whether becoming a landlord was a choice or a result of circumstance, it doesn’t change the fact that managing any property comes with its challenges… and we want to help.
Give us a call or drop an email. We’ll respond promptly to relieve
your stress and help you evaluate your property management options
plus maximize your rental property return on investment.