If the homeownership rate is at a 20-year low then the renting rate must be at a 20-year high. One consequence of this trend is a significant rise in rental income across the country. The total rental income of everyone combined has more than tripled in the past seven years.
The total rental income grew by a whopping 240 percent from 2007 to today. This gain arose from more renter households and rising rents. By contrast, the overall salaries and wages of everyone combined grew by 17 percent – due largely to more job creation and from some wage boost. The comparison clearly implies a much better time for landlords as opposed to wage earners.
Looking at other income categories, unemployment insurance payments have sharply fallen. More jobs have also meant fewer people on the public dole. Farm income has been shaved by a third in the past year as crop prices have fallen. Alert: agricultural land prices could be vulnerable to a meaningful correction if farm income continues to fall.
Most REALTORS® are not forking over higher rents. That’s because 86 percent of members are homeowners. Because real estate is their life, 46 percent of REALTORS® also own rental properties. Some REALTORS® specialize principally in property management, and among those who do they managed 49 properties on average in 2012. The three most commonly reported tasks of property managers were selecting tenants, taking tenant applications, and collecting rent.
The continuing fall in the homeownership rate is not good for the country on many levels. However, for business people, they have to follow the money and the rental income is where the action is. An owner of a rental property, if history is a guide, can expect rents to have doubled in 20 years while mortgage payments (if financed at fixed rate) to have not risen at all.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.