United States
July 26, 2022
PayProp Insights US

Opportunity for property managers as real estate market slows

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With home sales slowing across the United States and the future looking no brighter, residential rentals could provide real estate professionals with greater business assurance on the back of recurring revenue.

The Federal Reserve is expected to raise interest rates by a minimum 75 basis points (0.75%) this month to put the brakes on runaway inflation. Some economists now warn that tighter credit could cause prices to drop, especially in hot housing markets like northeast Florida.

In response, big institutional investors are already pulling back on purchases – in some cases by as much as half. Homeowners are also trying to time the market by selling up and renting until prices drop. Mortgage applications in June were down by more than 50% year on year, while the average 30-year fixed rate is up 2 percentage points since January.

Those waiting for prices to fall might have to wait a while. Demand for residential purchases is dropping, but so is supply. Single-family housing starts have dropped to a two-year low. Meanwhile, rising interest rates are putting off homeowners from moving and freeing up their current houses. 

In addition, rising house prises are being driven by more than just demand as construction material shortages are being passed on to buyers. The rising price of softwood lumber alone has added over $14,000 to the price of a new single-family home since 2020. Experts still expect more growth in 2022.

But whatever happens to house prices, a drop in homebuying will still cut into sales commission income, making property management an increasingly important income stream. Rents show no signs of softening: single-family rentals posted a 13.9% year-on-year increase in May with consistently high rises across all price brackets. As rising interest rates price more families out of homeownership, rentals are looking like a safe bet even amidst current market uncertainty.

More rental headlines

Single-family rents in Texas’ big cities continue to rise – The Real Deal

Houston data: June’s rental market thrives as single-family home sales decline – Community Impact Newspaper

Homebuilders are slowing down construction, and it could make it even harder for first-time buyers in the years ahead – Business Insider

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