Real estate investors who got in at the very bottom have watched their rental income rise over recent years as renters are spending more of their income on renting than before. In fact, according to the Harvard Joint Center for Housing Studies (1), more than half of renters in the United States now spend morerental rates on the rise than 30 percent of their monthly gross income on rent, up from 38 percent just a decade before.

That’s a 12 percent span and is now rewarding those savvy investors who bought when values were low and financed with rock bottom rates. Low cost, high return.

But what is contributing to the steady increase in renting vs. buying? It is a very curious question because interest rates still near historic lows should mean consumers can afford to buy compared to just a few years ago and housing prices are still below their peaks hit in the last decade. Yet just as mortgage lenders loosened their standards to finance more homes in the 2000’s those that are still in the game are approving loans with guidelines that make it much more difficult to be approved for a mortgage. The result is that 35 percent of citizens are renting compared to 31 percent just nine years ago. (2)

Adding to the equation was the lack of new housing starts for so long. Developers built in a frenzy beginning around 2005 and couldn’t provide new homes fast enough to satisfy the demand. Anyone could qualify for a mortgage and existing inventory soon dried up. Yet new developments got burned when the tables turned in 2008 at the beginning of the housing decline. Housing starts today have been on a steady increase over the past few months and new permits are on the rise but it will take time for this new inventory to hit the market.

Oh, and it appears interest rates should stay near their current range into next year but will likely begin to rise as the Fed stops the QEIII program. That means fewer people will be able to qualify due to higher rates. And that means more renters still. Looks like good news for investors well into next year and beyond.

  1. http://housingperspectives.blogspot.com/
  2. http://tinyurl.com/p37rtqv