At the start of each year, the Real Property Management organization predicts the economic outlook for landlords. In the media, most predictions are publicized and then forgotten. Few predictions are ever assessed after the fact for accuracy. To break this cycle, we decided to compare our predictions last January with actual results through 2016. See how we did:
Profitable rental properties will shrink for investors. We predicted that the supply of new & existing homes would drop. At the time, the supply of existing homes was 5.7 months, and the supply of single family homes was 5.2 months. We also predicted that foreclosures would continue to decline significantly. At the time of our prediction, the number of foreclosures was 470,000.
The supply of homes for sale has dropped to 4.6 months compared to last year’s 5.2 – 5.7 months. The number of existing homes grew slightly year over year from 5.48 million to 5.57 million now. However, the number of new homes jumped from an annual rate of 500,000 to 650,000 this year. The recent foreclosure inventory is down to 340,000 properties. All in all, our prediction was correct.
Household formation will rise. We predicted that Millennials would move out of Mom & Dad’s home and start new households. We also predicted that a significant share of these new households would be rentals.
Household formation was much greater in 2015 compared to this year. Through September, 1.16 million households were formed in 2016 compared to 1.91 million during the same period in 2015. We missed the mark by a wide margin. Counteracting this, Homeownership fell to 63.5%, the lowest level since tracking began in 1995.
Market conditions will get tighter. We predicted the vacancy rate of 5.12 percent for a 3BR single family house would stabilize, and might drop slightly.
Per the Census Bureau rental vacancies fell from 7.3% in 3Q15 to 6.8% in 3Q16. Vacancy rates for 3BR single family homes fell from 5.3% in 2015 to 5.2% in 3Q16 according to RentRange. Our prediction was correct.
Rental rates will outpace inflation. We predicted that the average rental rate for a 3 BR single family residence would increase from $1,353 in December and outpace the consumer price index.
The cost of an average 3BR single family residence at the end of 3Q16 is $1,459 compared to $1,393 a year ago, representing a 4.8% increase. The consumer price index 12-month average through October was up 1.6%. We were correct in our prediction.
Three out of four predictions is respectable. If we were baseball players, a batting average of .750 would be stellar.
We are now working on our Landlord Outlook for 2017. Next year, we hope to achieve perfection. Keep watch for our 2017 predictions on our blog in January.
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