With Americans generally reluctant to commit to buying homes, the market for rentals has exploded.
But Adam Artunian of John Burns Real Estate Consulting worries that things may be overheating in this market.
“Apartment builders continue to feverishly build to capitalise on rising rental rates and favourable demographics, but construction is reaching dangerous levels in some markets,” wrote Artunian.
He notes two major headwinds to the apartment market:
- “The average monthly cost of homeownership is currently equal to or below the average rental rate in most markets.”
- “The move-out to purchase ratio (as reported by the apartment REITs) has risen to 14% from 11% in 2010.”
“Construction activity has been especially elevated in tech markets like Raleigh, Austin, and San Francisco, which are currently over 175% of historical norms,” wrote Artunian.
However, Artunian notes that much of the supply in the hottest markets should be filled by local job growth. Furthermore, construction in most cities are below peak levels.
Nevertheless, participants in the rental market should be mindful of the warning signs.
Here’s his chart: