Rental Housing Outlook for 2024
We’re looking ahead at the 2024 rental housing market to review the mix of major influences on your property management business.
While each city/town have their own unique demand dynamics, the trends below will likely affect all landlords during 2024.
No one’s panicking about the sudden downward rent price trends in November, but are landlords about to get taken off guard? Are consumers running out of cash? Which way will the FED go with rates, will they be able to kick the debt can down the road again, and is it too late to prevent a recession?
“Despite the economy’s ongoing resilience … the Conference Board forecasts a short and shallow recession in the first half of 2024,” — Justyna Zabinska-La Monica, Conference Board senior manager.
Do you have a plan to keep tenants and protect your revenues?
Can Rents Stay Sky High?
US rent prices have increased by 24% since July 2019. And while there’s still support for house and apartment rentals, the current downtrend curve will need something to stop it. Last month, median asking rents fell 2.1% YoY —the biggest decline since February 2020 and were down .6% month-over-month, according to Redfin (now $1,967 median).
Zumper in its recent rental market report predicts rent prices will continue falling at least in the next 6 months. As you’ll read below, there are many influences on rent prices and demand in each city/town. And the looming debt limit crisis on January 19th might send a shiver through markets.
FED Rate Easing the Number One Optimism Factor
High rates have raised inflation and trapped homeowners in golden handcuffs. They’re getting ready to unload their property and Millennial renters are going to be among the buyers.
A slight drop in interest rates next year should give builders the green light to resume building new homes and multifamily units.
Rent Price Trends: Rising or Falling?
Zillow’s most recent rent reports shows typical asking rents in the U.S. have reached $1,982 (+3.3%) vs 12 months ago. Given the 4 year peaking, and slower FED stimulus spending, it’s not hard to predict a softening of prices.
Stats from NAR, Zumper, Zillow and Redfin all show a steepening decline for rent prices of recent and as this chart shows, the 2024 graph might alarm rental landlords.
Rent Prices Trend. Screenshot courtesy of Zumper.
The rental vacancy rate is climbing but not steeply. Will homes being sold in 2024, change that?
Rental Vacancy Rate Chart 2000 to 2023. Screenshot courtesy of Statista.
Cities suffering from rent price drops are those subject to all of these trends below.
Political Influences up to the 2024 Election
2024 will still be a year of housing crisis. Poverty will grow (as will taxes) and there are concerns about the health of the middle class.
Even without NIMBY anti-building regulations, it takes considerable financing power and time to build millions of homes.
Given the matter of FED rate burden and government spending crisis, it is completely political, which is why there are almost no rent price forecasts online. However, election years are typically positive, employment is still strong, banks are solid, and the stock market is optimistic. It might be a rocky year, but the rug might not be pulled out from under landlords.
The US government, a generous supplier of funds for rent subsidies may run out of cash in 2024. Some cities are facing a crisis that needs massive funding. In 2024, optimism will meet reality.
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Let’s look at each of the challenges that might be present in 2024:
Housing Supply vs Demand: A large volume of new construction was released in 2023 and more will be released in 2024. The US needs 4.3 million new apartments by 2035, and the logistics of building them makes it unlikely that will come about. Low supply will keep rent prices from plummeting in 2024.
Massive Migration from the Border: Demand for rental properties via the massive group of Gen Z’s and Millennials, along with millions of new illegal immigrants, who are still flooding over the southern US border. It paints a picture of strong demand against chronic undersupply which will actually provide strong demand for landlords and supporting asking prices in 2024. However, the issue of high rent prices, low wages and depleted savings means these tenants will be continuously on the verge of rent default.
Falling Mortgage Rates: rates are falling, but won’t be declining fast enough to save homeowners and landlords who need to refinance in 2024. This means many will either see foreclosure or will have to sell. Again, there’s opportunity for large asset companies with cash, who don’t need to finance through banks.
Buy vs Rent: Many buyers plan to buy in 2024 despite lofty home and condo prices. And while it is cheaper to rent than buy, these buyers consider it very risky to be a renter who could be evicted at any time. Landlords might encourage them by offering longer leases to ease that concern.
Types of Rental Units: Americans are increasingly living alone which is driving up demand for small apartments or 1 bedrooms. Millennials still demand townhouses and houses where they might start a family. Multifamily, duplexes and four-plexes appear to be the most desirable properties to rent out. The rent-to-price ratio makes them very profitable.
Work from Office: The work-from-home trend is fading after corporations demand workers return to the office. This has led to an exodus from pandemic haven cities and back to the major metros.
Rent Prices Trending Down: rents have been falling of recent and if government spending is curtailed, we might see unemployment rise, wages fall, and leases end with longer vacancies occurring. Even if rents only fall during 2024, it’s going to present cash flow problems at some point. Landlords might be wise to improve their rental value proposition to keep tenants and attract new ones.
The Economy: The US economy is slowing as the rate hikes begin to take effect after a long wait. Some call it a rolling recession that seems to darken the path ahead to curtail new construction, home buying, and reduce asking rents. It’s a double edged sword for real estate investors. Landlords would be wise to keep up on local employment and busienss trends along with re-envisioning their own business model to stay lean and avoid troubled neighborhoods.
Growing Tax Burden: So far, governments have been able to print money to spend to avoid economic weakness. Will the Republicans put an end to the spending spree in 2024? Without printing money, income and real estate taxes will have to rise to keep governments in the black. In our polls, landlords didn’t feel taxes were an issue. Cities such as New York, Chicago, Charlotte, Denver, and Seattle face big fiscal challenges in 2024.
Renter Migration: Employment, finances, culture, crime and political stresses are making Americans consider relocating somewhere else. Gen Z’s, parents, and renters are the most active movers and migrators. According to HireaHelper, 40% of movers stayed in the same city while 18% moved to another state. Half of those who didn’t move would do so if they had the means (and a rental to move to). Unsettled, discontented renters will have more opportunity to end their leases and find new multifamily rentals in 2024. Some will not move due to the unaffordability of other rentals and the cost of moving. According to one survey, renters want to be closer to family, have more space, find a new job, and deal with inflation.
Operations Costs: It’s believed 93 cents out of every rent dollar goes into keeping a landlord business running. And when rent revenues fall faster than costs, it could create a crisis for many small rental owners who don’t have access to credit. They’ll look to cut costs but that will only make their situation worse with tenants who may delay rent and break leases. Using new SaaS software keeps costs down (buy what you need) improves maintenance, oversees expenses, and increases work efficiencies which reduces labor costs.
Landlord and Property Management Insurance: Landlords pay 6% to 10% of expenses to insurance policies. That’s making them review their policies and reduce coverage where not critical. With insurance rates going up, 2024 will see even tighter budgets. Landlords can look to insurance policies via their property management software provider.
Rising Taxes: increases in property tax, capital gains and property taxes is inevitable, forcing some landlords to relocate to low tax haven states to reduce their tax exposure. Landlords should consult with a tax planner to find ways to ease tax costs.
Best Cities to Buy Rentals: Southern Migration: Investment in Texas, Florida, Tennessee, and other southern states will be up in 2024. Tenants continue to move there for job opportunities, lifestyle benefits, lower cost of living, and for greater rental inventories.
Landlords might find the best cities to buy rental property are in these Southern cities as part of your 2024 portfolio growth.
A Clouded View of 2024
It’s understandable why so few experts would venture a forecast of rent prices, yet all of the factors above from a slowing economy to increased supply to homeowners selling should result in less demand for rentals in 2024.
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Contact our sales team at 1-415-800-1245 to learn more about migrating to a modern property management software platform and transforming your property management business into a market-leading success story.
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