Read us and find out If Is Still a Good Idea to Invest in Residential Real Estate in the US
We have a neutral fundamental outlook for the Residential Real Estate Investments , as we think multifamily properties are beginning to see improvements in tenant demand that lead to a more stable market. We see Covid-19 as a rear mirror risk to further disruptions in monthly rent collections, especially as most tenants are back at work. We think higher rent concessions are subsiding from previous rental rates down 5% to 15% and free rent for one or two months, depending on geography. Total new supply coming into the residential real estate market is likely to be down slightly from prior years, especially in dense urban markets.
Residential RE are likely to remain cautiously optimistic for the second quarter of 2021 as Covid-19 becomes less disruptive to rental revenue, net operating income, and occupancy or leased levels. We think residential RE may launch select property developments or planned acquisitions, and will complete developments in progress.
We think demand for rental units may reach prepandemic levels by the second half of 2021. The pendulum for rent versus buy is moving back in favor of rentals properties as affordability and availability make owning a home more expensive today than ever before. Vaccinations are likely to reduce fears of high-rise living in expensive apartment rentals as well.
In the second half of 2021, rental renewal and new lease rates are likely to rebound, as property owners are less concerned about tenant turnover during strengthening economic conditions. New leases in many markets have been coming in with one to two free months and rental rates as much as 15% lower in coastal markets. We think lease renewals are coming in mostly at flat rates for older, more stable apartments versus new highrise properties.
Affordability may be an issue with select Class A properties in coastal markets that ask for high rental rates. In the Sun Belt markets, we see more stability in Class B properties that are older apartment complexes with fewer amenities than high-priced Class A new apartments in urban markets. We think residential RE with high concentrations of properties in Boston, Los Angeles, New York, San Francisco, and Washington D.C. are likely to recover later in 2021.
We are positive on leisure rentals of manufactured mobile homes in Sun Belt markets that benefit from baby boomers retiring in large numbers. These homesite communities target retirees from middle-class households, who are a more stable category, that are not dependent on job employment. Vaccinations will open up these rental communities even more by the summer months.
Another promising area is single-family rental homes that take advantage of families seeking a new lifestyle in the suburbs. Private equity firms and homebuilders are increasing their investments in single-family home rental real estate. The property developers target attractive neighborhoods at in-fill locations with demand attributes, such as proximity to major employment centers, desirable schools, and transportation corridors.
We expect Property Prices will have a positive return of an average 2% during the next 12 monts and the year-over-year pricing.
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