New Orleans investors, take note: Now might be a good time to purchase a single-family home and turn it into a rental.
It’s getting more and more expensive to rent a house rather than an apartment in some of the largest U.S. metro areas, and New Orleans is one of the three markets, along with Portland and Chicago, where this trend is glaringly obvious. Lack of supply of rental houses is driving both the demand and the prices up.
Rental Demand Nationwide
One of last year’s housing trends reports indicated a few findings that can help you understand and analyze the housing market in New Orleans, and how it is affected by rental demand. Those findings are both New Orleans-specific, and also apply to several of the largest metro areas across the U.S.:
- The median monthly rent for single-family homes is rising faster than the median monthly rent for apartments: 1.3 percent year-over-year for houses vs. 0.5 percent for median rent for an apartment nationally.
- House and apartment rents have both slowed down nationally over the past year, but median rent for houses rose 1.3 percent annually to $1,404, and the monthly rent payment of $1,551 has indicated a 0.5 percent increase.
- The supply of single-family rental homes has not kept up with high demand, but multi-family rents have remained relatively flat due to construction, with several current and upcoming developments of condos in the French Quarter and elsewhere in the works.
- The supply of single-family homes has dwindled over the last decade, with nearly 20 percent of all single-family homes nationwide being rented in 2016, a 13.5 percent increase over the decade.
What’s Causing the Trend?
The two main factors mentioned — that, again, applied nationwide and to New Orleans specifically — are the housing market crash and the fact that many first-time homebuyers and those who have lost their previous home to foreclosure can’t afford to buy a home. The foreclosure crisis of 2010 has turned many homeowners into renters, and they haven’t been able to afford going back to owning a home.
The same report provided the following telling numbers:
- A 20 percent down payment typically costs more than two-thirds of the median household income (even more in pricier markets).
- Out of 45 percent of renters who consider renting a single-family property, 28 percent ended up doing so.
- About half of homebuyers with children consider renting instead of purchasing during their home search.
In the meanwhile, first-time homebuyers may not be able to buy right away, may choose to wait to find the right opportunity, or are simply attracted to apartment living. This applies to millennials in particular, in several New Orleans areas where the necessities and the staples of urban living, like grocery stores and restaurants, are plentiful and within walking distance (Mid-City, CBD).
Here’s the report’s breakdown by generation:
- Generation X (ages 38-52) is “significantly more likely” to rent a single-family home than any other home type — 40 percent of them are single-family home renters.
- 25 percent of millennials (ages 18-37) are renting a single-family home; 50 percent are renting an apartment.
- 10 percent of Silent Generation renters (ages 73 and over) are renting a single-family home; 62 percent are renting an apartment.
How the New Orleans Housing and Rental Markets Are Affected
Some reports indicate that there’s a direct correlation between the annual change in rent prices and the annual change in renters’ income in the country’s largest metro areas. Landlords raise rents when renters with higher incomes show up (due to gentrification or other factors). Combined with the changing short-term rental regulations, and the fact that the working and middle classes are moving to the suburbs in increasing numbers, the housing prices in cities with growing economies have been rising.
That New Orleans is in that number is not surprising. Consider the rule that housing costs should take up no more than 30 percent of income within the household budget. For the median U.S. household that means under $1,400 a month. For New Orleans, with the annual median household income of $38,681, the number is $1,160. While these numbers might be discouraging for renters, they do present investment opportunities. Because this type of property is in such high demand, now might be a good time to buy a single-family home in New Orleans and turn it into a rental.
If you are considering investing in rental property in the greater New Orleans area, contact an experienced New Orleans Realtor who can help you navigate your options and achieve your real estate goals.