As rents have dropped in the US housing market, could this cause more investors to look further afield for their next investment opportunities?
For 14 months in a row, rents have fallen nationally for all unit sizes across the US housing market. In September, the median asking rent dropped by 0.5% from the year before, according to Realtor.com’s latest rental report.
Properties with a smaller number of units recorded the most substantial drops. For example, the median rent for studios in particular dipped by 2.3% year-on-year, and one-bedroom units saw rents fall by 0.5%, which is the 16th back-to-back year-on-year drop.
Rents for two-bedrooms fell by a smaller margin of 0.4%. Over the last five years, larger properties have seen the strongest growth, leading rents to rise by an impressive 21.4%.
A regional divide on rental prices
At the same time, a regional divide in rents has been developing across the US housing market. While rents dropped in numerous metro areas, eight of the 10 Midwestern markets covered in Realtor.com’s report recorded year-on-year rent rises last month. Rents notably grew the fastest in Cincinnati with a 3.4% rise, and St Louis and Minneapolis followed with 2.6% and 1.9% growth respectively.
On the other hand, eight of the 10 markets with the biggest declines in rents were located in the South with Nashville having the sharpest decline at -4.8%. This drop is predominantly happening due to a steady rise of new multi-family developments in this area of the US housing market.
Danielle Hale, Chief Economist at Realtor.com, said: “The balance between housing supply and demand is a key factor shaping regional rent patterns. In markets across the South, increased multi-family inventory is easing competition among renters and driving down prices.
“On the other hand, in the Midwest, where demand has still outpaced supply, we continue to see rising rents. Nationally, the relative stability in rent prices should translate into slower shelter inflation in the months ahead, easing one of the biggest recent drivers of price increases.”
How does this impact investors in the US housing market?
With rents falling in a range of areas across the US housing market, this naturally impacts investors’ rental incomes and yields, making their investments less lucrative. With certain ongoing challenges prevalent in the rental sector, many investors have already been looking at opportunities abroad.
The UK property market in particular has remained especially strong even through a number of economic and political uncertainties. On top of that, the pound has been weaker against the dollar and the euro in recent weeks. This could start to attract even more investment from overseas, and US buyers have become one of the leading overseas buyers and investors in UK property.
Looking within the rental market in particular could prove to be especially advantageous as approximately a fifth of all households in the UK live in private rental properties. This equates to 4.6m households and is a crucial segment of the property market. The number of tenants seeking properties continues to outpace the number of landlords offering them, creating an imbalance with an ongoing housing shortage.
Recently, this has been a major factor for accelerating rental growth. For property investors deciding where they should invest, focusing on locations with growing tenant demand, competitive prices and strong yields are the building blocks for most successful investments in the UK.
Because of the strength and opportunities prevalent within the housing market there, this could lead to more US investors looking further afield for their next property investments. With long-term appeal, UK property investment provides an option for investors to effectively diversify their property portfolio with exciting opportunities forecast in the coming years.