Industry Trends: Rental Forecast
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Industry Trends: Rental Forecast
In corporate relocation, the focus is typically on homeowners while the renter population is considered easier and faster to move. Often, renters have more flexibility to relocate due to smaller family sizes and fewer possessions on average. While relocating renters may be a more simplistic process than homeowners, it comes with its own set of complications, such as rental costs being up 25% over the past two years (WERC).
There are three trends that continue to resonate in the rental sector:
- Inflation. The general consensus is that the rate of inflation will continue to rise steadily through 2023. With the Inflation Reduction Act, some are hopeful that inflation will level off and even reduce before the end of the year, but the fate of the economy is still in flux. Inflation is a leading reason why nearly 75% of renters failed to pay their bills on time in the past year, according to the “2023 Property Management Industry Report” (RHJ).
- Mortgage Rates. From 2022 to 2023, mortgage rates went from 3% to 7%. While the Federal Reserve is expected to pause interest hikes in the next few months, according to some experts in the financial world, a recent report states that interest rates could be as high as 9% by the end of 2023 (NASDAQ). While the increase is slowing, interest rates are expected to continue rising steadily for some time. This is driving greater rental demand from transferees who cannot purchase a home at the higher interest rates in their new location.
- Diversified Space. Not only has the number of renters increased in recent years as inflation and mortgage rates have risen, but the need for space has also increased. An unforeseen consequence of COVID-19 quarantines is that they made individuals re-evaluate their home or rental setups. A greater importance has been placed on multi-faceted area, such as open rooms that can include a home office and entertainment area, outside patios or gardens, and a larger kitchen to allow for life trends like food prepping (Realtor.com). For the relocating employee, this could mean more personal requirements, a greater need for rental tours, and a willingness to pay higher costs for certain amenities that are now considered “needs” instead of “wants.”
Since the beginning of the COVID-19 pandemic, renters saw a startling increase in the cost of rental properties. However, similar to the housing market, this is expected to slow as 2023 progresses. As mortgage rates continue to rise, homeownership becomes less feasible for many people, resulting in an increase in renters. When rental prices are high, there is often an increase in reluctance from employees to relocate. This might be due to the fear of increased costs in certain areas, as well as losing any “grandfathered” programs that keep current renters at a lower rate than new renters.
These issues have led to many companies re-evaluating their rental assistance policies to ensure the best offerings for their transferring employees, including, cost of living adjustments, more destination services, or help with breaking leases. At NuCompass, our Directors of Client Relations are focused on partnership, efficiency, and best practices to help find rental solutions for all parties.