Rents are starting to go up. According to the Federal Reserve Bank of Cleveland:
Rents are starting to accelerate. Rent of primary residence rose 3.1 percent in December, and has risen 3.5 percent over the past six months. Owners’ equivalent rent (OER) rose 2.2 percent in December and is up 2.3 percent over the past six months. Interestingly, all but one of the regional OER components we use to compute the median CPI posted an increase near 3.0 percent in December (the median component was OER: Midwest, which rose 2.9 percent).
Rents are simply responding to the laws of supply and demand. Demand for rental properties is up as the number of renters has increased significantly due to the foreclosure crisis and a reduction in the amount of available credit for home loans. The market is responding to this increased demand for rental units. According to the US Census Bureau, the number of permits for the construction of multi-family units are up over 50% since December of 2010.
Single family home construction continues to be in the dumps. New single family home construction permits are down over 75% from the boom time highs, as this chart shows:
What does all this mean for the average investor? First, if you own rental property, keep it. Rental inflation and thus rental profits should increase over the coming year. Second, continue to buy and hold rental properties if you can. Third, if you’re a flipper, buy and hold investors are going to be your buyers. Fourth, continue to be very careful with retail flips. Very few areas are viable retail markets right now so choose wisely.
It is more and more obvious to me that real estate investors are going to be the ones that get us out of this mess. I just hope the banks and our government begin to realize it as well.
