How Optimistic Landlords Could Redefine The Housing Market


Originally published in

By Joe Edgar

On paper, this should be a difficult time to be a landlord. Interest rates have been rising, and could continue rising in the near future. Incomes remain flat across much of the country, limiting the cash that prospective tenants have available to pay rent. And household formation remains stagnant, meaning more young people are staying put and not venturing out to live on their own.

We’re seeing these trends play out in the market for new homes already. As of the end of 2018, new home sales were down, prices were falling and the market finally seemed to be losing the momentum it had built up since the end of the housing crisis.

But things are very different in the rental market.

Optimism Is High

Across the board, landlords have never been more optimistic about the state of the industry. According to the National Landlord Association’s Single Family Rental Industry Report 2018, 51 percent of respondents said they expect the 2019 rental market to be stronger than it was in 2018, 53 percent said rents will go up this year, 55 percent are planning to buy more properties in 2019 and a whopping 84 percent are “optimistic about being in the rental business for the next five years.”

This at the same time that 81 percent of respondents expect interest rates on property loans to rise in 2019.

This means that, even amid rising rates, a large part of the rental ownership market is planning to buy more properties and expand their businesses.

It’s a clear indication that they view the rental industry as being on the way up, not on the way down. Despite all of the headwinds that should be created by rising interest rates and other economic uncertainties, landlords are still buying because they see the opportunity in this market as too good to pass up.

Looking Ahead For Sellers

This was all before the Federal Reserve turned extremely dovish in 2019. This dramatic shift in tone could have major ramifications for the market as a whole.

Given that many landlords had already factored in higher rates and were still willing to buy, we should actually expect to see an even bigger jump with even more landlords going into buying mode now that the market knows that rates are going to be steady.

The Rental Game Is Changing

For a housing market that’s under pressure, this optimism could redefine the market.

Traditionally, the market for first-time buyers has been similar to that for rental properties. They’re buying the same types and sizes of homes. Second-time buyers usually go a little bigger, with 4,000-square-foot properties and larger lots. And third-time buyers are looking even bigger, opting for the million-dollar homes in more established neighborhoods as well as downtown condos. It’s been this way for decades.

Now, however, things are changing.

Rather than falling nicely into categories, more and more homes of all sizes are being used as rentals, because that’s where the demand is right now.

Sellers should be focusing their attention not on first-time buyers or even second-time buyers, but rather the landlord market. Even if we enter an economic downturn and real estate takes a dip, the strength of the rental business is likely to keep climbing.

This is the message that landlords are sending to the rest of the real estate industry: There’s no such thing as a “rental” and a “non-rental” anymore. Every property can now be sold as a potential rental property because there are a lot of landlords out there who are ready to buy.

Joe Edgar is the founder of TenantCloud, which helps tenants and landlords manage their relationship.