Rental Incomes Continue to Outpace Other Sources of Income

The economic recession in 2009 was painful to most people. However, as wages and salaries, proprietors’ income, and income from assets (e.g., stocks, etc.) contracted that year, aggregate rental income rose as many homeowners turned into renters.

With the economy growing again, the aggregate levels for all types of income has been rising. Rental income continues to outpace all other types of income and has been growing much faster than the inflation rate, creating high positive real returns.

However, the forces of supply and demand are starting to move towards a balance, with rental income growth now decelerating. On the supply side, more rental units appear to be coming into the market as investors are reportedly converting foreclosed properties into rentals. On the demand side, foreclosures have started to ease; although the magnitude of past due and foreclosed properties is still large, having dropped from a peak of 6.7 million to 4.8 million as of Q3 2012.

The outlook is for the demand for rental properties to continue to grow substantially if current mortgage standards remain excessively stringent. Although sound credit practices are essential, most REALTORS® believe that the current lending standards have become excessively tight, even for credit-worthy borrowers.

We get a number of comments from REALTORS® in our monthly REALTORS® Confidence Index survey concerning potential first-time homebuyers who lose bids to investors because of a strong rental market. If there is any consolation, the situation shows that the existing home sales market is strong and upbeat. In this type of situation the old phrase “Try, try again.” applies. Both mortgage money and homes are “out there,” but in this market persistence may be necessary.