Feb 9, 2009
4 trends in housing
We’re witnessing deflation and rising unemployment,resulting in trailing decreases in consumer spending. The movement towards thrift spendinghas impacted the housing market, and I am noticing a couple of obvious trends.
1) Empty nestsare being filled
Renting is the largest living expense and consumers aremoving home to reduce that cost. Manyrecent college graduates, young professions, and the unemployed will be forcedto move home.
2) Per unitoccupancy is increasing
Before the recession, a typical 4 bedroom unit wouldhouse 2 or 3 occupants. Now,residents are forgoing the luxury and privacy of living alone, and moving inwith roommates. We will continueto see a trend of more one bedrooms vacant compared to cheaper four bedroom counterparts.
3) Influx ofsecond homes becoming rentals
As downward pressure is placed on the pockets ofthe upper-middle class, many owning vacation homes will begin to seekadditional income via rent. Withsome 6.6 million units classified as “second homes”, this will results in morerentals on the market.
4) Risingvacancy, declining home purchasing
We’re seeing a positive correlationbetween the volume in home buyers and renters…And by positive correlation, keep in mind that I mean they are both decreasing.
What does this all mean? Simply put, increases in vacancy and decreases in rental rates. It does not mean that the rental sector will resemble theprice sensitivity of the airline industry, but we will see a push towards moreaffordable housing options. Anecdotally speaking, I’ve seen my properties decrease 10% in rental rates yoy.
How do you combat the current economic crisis? Unfortunately, I do not know the exactanswer, but the first step is to recognize that profits equal revenue minus costs. It will be increasinglymore difficult to increase revenue as the downtown continues, but you can takeadvantage by reducing costs. Again, we’re seeing deflation, so renegotiate contracts with your vendors, maintenance companies, etc. Reductionsin operating costs, advertising costs, staffing costs, turnover, and other line items can help you stay afloat.
What other trends are you seeing?