Bullish Rental Market
Rental markets have continued to surge across the United States as we move deeper into 2022. Demand for quality living spaces is still reaching record highs while vacancies have been almost nonexistent. This trend is causing rents to increase again for the 15th month in a row. This market environment provides an excellent opportunity for you to benefit from in the first trust deed lending market.
Rental Market Hits New Records Highs
Median average rents are still rising as we enter the third quarter. In May 2022, the median monthly asking rent in the U.S. surpassed $2,000 for the first time, rising 15% year over year to a record high of $2,002, according to data from Redfin, a full-service real estate brokerage. See chart “U.S. Median Asking Rent” for details.
This growth in rents across the country is corroborated by data from Realtor.com, which saw the median rent for 0-2 bedroom units in the top 50 metropolitan areas reach $1,849 in May. This is the highest level in Realtor.com rental data history, and the 15th consecutive month of a new record rent level.
Near Historic Rental Vacancies
The rental vacancy rate in the first quarter of 2022 was 5.8%. This is slightly higher than the historic low of 5.5% recorded in 1984. However, it is lower than the quarterly vacancy rates at any point during the 35 years from 1985 through 2019. See chart “Rental Vacancy Rates in the United States” for details.
The last peak in rental vacancies at 11.1% and occurred in mid-2009. Since then, vacancy rates have been falling continuously as the Millennial generation has pushed into the housing market. The last low of 5.7% was reached at the beginning of the COVID-19 pandemic and was followed by a brief period of recovery before again closing in on the historic low.
It’s a Landlord’s Market
As mortgage rates continue to increase and viable homes to purchase become scarcer, would-be homebuyers are instead being forced to keep renting. This unique rental environment is creating a paradox. While renting has become more expensive, it is now more attractive than buying a home for many Americans as mortgage payments have surpassed rents on many homes.
In 1975, there were 26 million American renters. Today that number has almost doubled to 44 million American renters.
The number of rental units has grown to meet the rising demand. Between 1990 and 2019, the number of available rental units across the country increased by 13.3 million units. However, during the same period, the number of affordable rental units decreased by 3.7 million units. The Harvard Joint Center for Housing defines affordable units as costing less than $600 adjusted for inflation over time. See chart “Change in Number of Rental Units” for details.
The reduction in affordable housing across the country has created a rental supply shortage in this category, leaving landlords with nearly all the bargaining power compared to renters. The cold truth is people must live somewhere; they cannot just go anywhere. Accordingly, landlords are in a position to maximize their returns and reset rents to market rates during renewals or changes in a renter.
Rental costs for all types of units will likely continue to rise throughout 2022, albeit at a slower rate. Landlords will continue to have significant pricing power while rental vacancies remain low because there aren’t empty units they need to fill.
What Does it Mean for Investors?
In the light of international affairs in Eastern Europe and a tightening monetary policy at home, stock and cryptocurrency markets have been volatile in 2022. In contrast, the U.S. rental market currently provides a stable and reliable source of return, as rents are expected to grow in 2022.
Investors should look for ways to participate in the rental market. First trust deed lending is an attractive and easy way to do so. Our team has specialized in first deed trust investments with an excellent price-to-rent ratio for the last decade. The current market environment with steady growth in rents continues to improve cash flow of our borrowers and increases their ability to pay back their loans. Therefore, the time to become a first deed trust investor is now.
Safeguard offers short-term construction lending options that pay between 10% - 12% and are on 6 – 12 month terms. We also offer 3 to 5 year loans on fully renovated properties with tenants in place that pay 9-10% interest. Lending options start as low as $35,000
Real estate lending is an attractive and easy way to earn an income above the inflation rate. Our team has specialized in recommending investments with low-risk and high-yield profiles. Therefore, we encourage you to reply to this email or give us a call: 877-280-5771
