2019 Economic Outlook for Landlords
Each year, Real Property Management gathers information about current real estate market indicators to create an economic outlook for landlords and rental property owners. In 2018, our predictions were 95% accurate, offering a solid guide for investors as they navigate a market perpetually in motion. In what follows, we offer our economic outlook for 2019. Our 2018 predictions were relatively easy to make during a booming housing market. However, the year ahead presents a more challenging and complex landscape reflecting changes in the tax law, the increased costs of borrowing capital, tariffs, and an increasingly volatile stock market. Some economists are warning that an economic downturn is a possibility, while others claim there is no cause for alarm.
Real Property Management’s five predictions for 2019.
- Rental property investors looking to buy high cash flow rental homes will face challenging market conditions. Foreclosure levels dropped to a historic low in 2018 and will likely remain so, making bargain properties more difficult to find. Affordability in the single-family home market is expected to improve slightly as home price growth slows to a forecasted increase of 2.2%. But because this rate matches the current rate of inflation, watch for property value increases to be in step with or possibly dip below inflation.
- Mortgage rates will rise in response to anticipated increases in the prime rate. This means a reduction in competition for affordable properties, pricing new homebuyers out of the market but also making it more expensive to finance new rental property purchases. If the Federal Reserve raises rates as expected, Aaron Terrazas, director of economic research for Zillow, says rates for the 30-year, fixed-rate mortgage could go as high as 5.8% in 2019.
- Low inventory levels will create a more competitive market. The lower-than-expected number of new builds in 2018 has economists predicting this under-producing trend to continue into 2019 with a less than 7% increase. At the same time, professional investors have taken notice of the stability of the single-family rental home market, creating an influx of new property owners. These conditions and more will create limited inventory conditions in 2019 and make for a more competitive real estate market.
- Rents for single-family residences will increase at the same or higher rate than last year. Morningstar reported that in 2018, rent increases were consistently at or above 4% in many areas, with significant upward shifts in the vacant-to-occupied rates. With high mortgage rates and economic uncertainty, many renters will likely continue to rent, sustaining a strong demand for rental homes.
- Vacancies will be relatively easy to fill. The current rental market is dominated by millennials and others who have decided to delay buying property. Faced with economic factors like wage stagnation, uncertainty about the effects of the new tax law, and dire warnings from economists about trouble ahead, an increasing number of would-be buyers are putting off real estate purchases. At the same time, affordability and high mortgage rates are expected to continue putting the squeeze on many first-time homebuyers, pricing them out of the market and encouraging them to continue to rent.
These final two predictions are good news for investors looking to enter the market, or those looking to purchase additional rental properties. Although obtaining bargain rental properties will be difficult and financing more expensive, the outlook for strong rental demand and rising rents make single-family rental investments an attractive long-term investment. In a competitive market, it is more important than ever to have a good sense of what to expect from the real estate market in the coming year. By conducting research and preparing these real estate market predictions, Real Property Management is investing in the success of property owners. In addition, we offer a range of tools and financial reporting capabilities to keep you in the know and prepared to succeed. Would you like to learn more? Please contact your nearest Real Property Management office.