Wages are not keeping up with home prices and that’s creating strength in the rental market. But wages are also failing to keep up with rents in some areas, resulting in a high number of evictions.
RealtyTrac, which is owned by ATTOM Data Solutions, just released its 2017 Rental Affordability Report. It shows that buying a home is more affordable than renting, in 66% percent of the U.S. markets. That leaves 44% of the markets where it’s more affordable to rent.
But places where it might be more affordable to rent include several counties in California where rents and home prices are high – so affordability is out of reach for many, in both scenarios.
It’s best to look up specific areas of interest if you’re thinking of buying for personal reasons or for an investment, to see how the numbers affect your plan. The report gives you a way to do that.
It has an interactive map of the United States with circles in different locations that represent whether the area is more affordable to buy or rent. And if you click on those dots, you get specific information. We will include a link for that map, if you’d like to look at it (below).
What’s interesting for investors is that the report also shows the best and worst rental markets for Millennials.
Daren Blomquist of ATTOM Data Solutions also says that rising mortgage rates could quickly change the affordability comparison. He says: “In that scenario, renters who have not yet made the leap to homeownership will find it even more difficult to make that leap this year. Additionally,” he says, “renting may end up being the lesser of two housing affordability evils in a growing number of high-priced markets.”
So there will continue to be a strong need for rentals in less affordable markets, as there are many markets where home prices are still low but have strong rental demand.
No matter where you choose to invest, landlords should pay attention to another report about “evictions.”
Redfin just published a blog that says an estimated 2.7 million renters faced eviction last year. The company was able to use information from a public data collection company that had six million eviction records for 19 states. The Census Bureau plans to collect more comprehensive data on evictions starting this year.
The analysis shows a 3.8% increase in evictions in 15 metro areas where renters had the highest rent to wage ratio in 2013 and 2014. In Newark, New Jersey, for example, the cost burden for renters grew by 4% and resulted in the eviction of one out of every 11 rental households in 2014.
Redfin also pointed out that that’s not a solid cause and effect relationship. It said in Las Vegas, one in 12 households were evicted but the rent to income ratio is very low.
So where are we likely to see more evictions?
Redfin says that data from the American Community Survey shows that evictions are most common in places where there are more foreign-born renters. But does that mean landlords should exclude immigrants in their selection process? Of course not! For one, it’s against the law to discriminate based on race or national origin so that’s not the solution.
But also, evictions could have a devastating effect on families. They could make families ineligible for the Section 8 Voucher Program, and could also lead to job loss or homelessness.
If you own investment property, it’s best to make sure during the screening process, that your tenants will not be cost-burdened from your rents. Researchers say that more than half of all renters in the U.S., or about 50 million renters, are cost burdened now! They define it as spending at least 30 percent of income on rent.
You can avoid evictions as a landlord by making sure applicants have a solid, long-term job and adequate income for your current and future rent requirements.
If you are using a property manager, make sure you understand their screening process. Learn more by joining Real Wealth Network for free.
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