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The Hidden Opportunity in America’s Rental Surge: A Lending Perspective

November 11, 2024

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What Now?

How the market has changed and how loan officers can take initiative.

Wednesday, November 13th – not Tuesday or Friday.

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The Rental Market Surge: Analysis and Opportunities for Lenders

The Growing Rental Market

Recent data shows a remarkable trend: rental households are growing at triple the rate of homeowner households. In the third quarter, renter households increased by 2.7% – the second-largest year-over-year gain since 2015, while homeowner households grew by just 0.9%. The national rentership rate holds steady at 34.4%.

This growth pattern has been consistent for four consecutive quarters, primarily driven by home purchasing costs outpacing rental costs. While these numbers might seem alarming, they’re not unprecedented in historical context.

Market Challenges and Solutions

The current situation stems from several factors:

  • Rising interest rates
  • Limited housing inventory
  • Restrictive building regulations

Without policy changes addressing these issues, this trend is likely to continue. However, this presents an opportunity for innovative lenders.

Strategic Opportunity for Lenders

Here’s a practical strategy for lenders looking to capitalize on this market:

  1. Partner with Realtors
    • Connect with realtor partners
    • Request MLS pulls of the most affordable 10% (or 5%) of listings
    • Focus on entry-level properties
  2. Target Potential Buyers
    • Utilize title policy searches to identify renters in non-owner-occupied properties
    • Access cell numbers for direct outreach
    • Focus on payment-based selling rather than house prices
  3. Target Market
    • Gen Z and Millennials represent a significant opportunity
    • Many want to buy but have been priced out
    • Current renters include many aspiring homeowners

Economic Context

The current market situation is particularly interesting when viewed against recent economic history:

  • During the pandemic, Americans achieved record-high savings
    • Personal saving rate peaked at 32% in April 2020
    • Remained above pre-pandemic levels through 2021
    • Declined as inflation began impacting household budgets

Market Indicators and Future Outlook

A concerning indicator is the S&P 500’s price-to-sales ratio, currently at 3.0 – a level not seen since the last housing crisis. This high valuation raises questions about potential market corrections.

Key Takeaways for Industry Professionals

  1. Focus on identifying and targeting potential first-time home-buyers among current renters
  2. Develop strategies around payment-focused rather than price-focused selling
  3. Monitor market indicators for potential corrections
  4. Build relationships with realtors to access the most affordable inventory
  5. Consider the impact of depleted pandemic savings on housing market dynamics

The current market presents both challenges and opportunities. Success will depend on adapting strategies to changing market conditions and understanding the evolving needs of potential homebuyers.