High home prices fueling demand in fully furnished apartments
Sep 12, 2018 Philip Burgess
With home values through the roof - the typical existing home in the U.S. through July lists at $269,600, the 77th month in a row that the price has increased, according to the National Association of Realtors - renting popularity has skyrocketed. The trend in property preferences has afforded landlords and real estate investors plenty of opportunities to evaluate creditworthy tenants using alternative credit data.
In an attempt to distinguish themselves from other entities, property managers are opting to furnish the apartments, houses and condos that are available for rent, a decision that's proving to be both popular and profitable.
Citing figures from the Highland Group, The Wall Street Journal reported that revenue for the corporate housing market has exploded. Indeed, in 2017, its valuation was $3.6 billion, a 13 percent increase from 2016 and the fifth consecutive 12-month stretch of year-over-year growth.
Devon Patterson, a New York City-based visual effects production manager, told the Journal that renting his place fully furnished has enabled him to buy with less hassle and concern should he decide to move elsewhere.
"I can just enjoy New York and not feel locked in by my furniture, my cable and my internet," Patterson explained.
The serviced apartments industry is not only becoming wealthier, but so too are the opportunities would-be renters have to take advantage of them. Last year, there were approximately 72,201 vacancies, the Journal reported. That's a 6.5 percent increase compared to 2015.
Home prices up over 4 percent from 2017
Driving the push toward renting, at least in part, is the unabated pace with which home prices are climbing. Even though sales have fallen for four straight months - based on the most recent available data from the NAR - asking values aren't letting up. In fact, the median home nationwide this past July cost buyers 4.5 percent more than it did the same time last year. Additionally, more than half of the properties available for purchase during the 31-day period - 55 percent - took less than a month to be accounted for (27 days).
Mary Ann Passi, chief executive of Corporate Housing Providers, told The Journal that the less competitive aspect of serviced apartments spans the generations.
"We are not only seeing millennials and a younger generation who don't want to own a home somewhere; empty-nesters are doing the same thing," Passi mentioned.
No slowdown in the offing
With interest rates pressing higher, which typically have an impact on mortgage costs, the uninterrupted pace of home prices doesn't appear to be headed for a respite, neither in the short or long term. This is particularly true in highly populated metropolitan statistical areas, where home values and mortgage rates have reached record levels. In Los Angeles, for example, the average buyer spends 45 percent of his or her income on the mortgage, according to newly released figures compiled and crunched by Zillow.
Given that an increasing number of companies are taking a bite out of the furnished-rental apartment apple, renters are forced to keep their asking values low to remain competitive, the likes of which include Airbnb and VBRO.com, a vacation-rental website.
Highland Group partner Mark Skinner told the Journal fewer cost considerations serve as another reason why furnished apartments are all the rage.
"There is growth in the units that are being marketed to people who want to write only one check," Skinner said.
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