With an increase in rental supply and a rise in costs, US property investors are facing challenges as rental prices drop and void periods increase.
Throughout 2023, the US rental market experienced a noticeable shift in momentum, impacting US property investors. There were eight consecutive months of year-on-year rental price declines, according to Realtor.com’s latest rental reports. This drop has been partly caused by the uptick in housing supply from the building boom of recent years.
In December 2023, the median asking rent for 0-2 bedrooms across the 50 largest metro areas in the US dipped by 3.5% from July 2022. Median rents fell across all unit sizes with some of the biggest drops in the West.
Danielle Hale, chief economist at Realtor.com, comments: “The rental market took a turn in 2023 as an influx of new multi-family apartments coming to the market exerted downward price pressure on median asking rents, which resulted in eight consecutive months of year-over-year price declines as we closed out the year.
“Amid high inflation and costs, softening rental prices throughout 2023 offered renters a small reprieve, and looking forward, Realtor.com anticipates continued weakness in the rental market for 2024, as a much-needed supply of apartment units continues to come onto the market and further impacts market dynamics.”
The US regions seeing the biggest drops in rent prices
Rental trends in December mirrored patterns seen in the previous two months. In the West and South, supply exceeded demand, which led to a decrease in rents hitting US property investors’ pockets.
At the end of 2023, the median rent across the West dropped by 1.6% from a year prior. Large metro areas like Los Angeles and San Francisco continued to see year-on-year declines with drops of 3.5% and 2.8% respectively.
Rental demand in the South remains strong; however, heightened supply from a significant 32.0% growth in annual multifamily completion rates between January and October last year contributed to a drop in rent prices.
The median asking rent for 0-2 bedroom properties across the South was 0.5% lower than a year ago. Orlando, Austin and Dallas saw the most substantial year-on-year rent declines with drops of 6.2%, 5.4% and 4.7% respectively.
UK rental market remains popular among US property investors
With some of the ongoing challenges in the US rental market, US property investors looking abroad for a new location for their assets are increasingly drawn to the UK property market. The UK has weathered the recent storms of the Covid pandemic and other external headwinds, like political uncertainty and the cost-of-living crisis, better than many had expected.
For US property investors considering their options right now, focusing on the substantial demand within the UK rental market could prove to be lucrative. Tenants continue to dramatically outnumber the supply of properties in many areas, and this can positively impact the rental yields investors achieve.
On top of that, recent statistics revealed the UK population is increasing faster than expected, and this is expected to lead to even more tenants seeking rental homes.
For property investors looking into where to invest, focusing on locations with strong tenant demand, competitive prices and higher than average yields are the starting blocks for most successful investment outcomes in the UK.
Regional areas, especially the north-west, are currently seeing heightened rental demand from tenants. In areas where there’s strong tenant demand, this also often means shorter void periods for investors between tenancies, which can have a further positive impact on returns.
As demand in the UK rental market remains sky-high, this provides opportunities for overseas buyers, including US property investors, to secure property investments in a thriving private rented sector.
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