Property Managers Flourish as Housing Supply Sinks

Marc Courtenay - 3/24/2015

Conditions keep improving for the property management business across the U.S. That’s partly due to the slumping supply of houses for sale which has been waning since the final quarter of 2014.

The reasons for the sparse number of homes for sale vary according to regions. Most areas are benefitting from lower mortgage rates allowing borrowers to better afford the cost of ownership.

Yet weak housing construction and the growth of the single-family rental market have weighed in to lower the supply of houses for sale. Property managers benefit as potential owners snap up rentals.

Another unfortunate reality that discourages sellers is an ongoing effect from the last housing bust. I’m referring to "negative equity” or owing more than the home’s market value.

About 10.4% of all homes with mortgages, estimated to be about 5.4 million houses, are "underwater” with negative equity as of the fourth quarter of 2014, according to CoreLogic. That’s not all!

Of the nearly 50 million U.S. homes with a mortgage, approximately 20 percent have less than 20 percent equity, and 1.4 million have less than 5 percent, according to CoreLogic.

That translates to over 10 million houses that aren’t likely to be sold while the owners hope that housing prices will continue to rise. It’s the proverbial "being stuck between a rock and a hard place”.

These homeowners are less likely to sell not only because they’d lose money in the process, but they also might not qualify for a new mortgage. Rather than take that risk they hold on to what they have.

Relief may be on the way! The Federal Reserve’s Open Market Committee announcement on March 18th sent the yield on the benchmark 10-year Treasury bond down over 5% in one day to 1.95%.

In a statement following its meeting, the Fed’s policy-setting committee repeated its view that job market conditions had improved. While a June interest rate increase is now possible the Fed has enough flexibility to wait till later in the year, stressing that any decision would depend on incoming data.

"The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium-term,” the Fed said in its statement.

In the meantime mortgage rates are likely to move lower in the weeks ahead. Yet that may not be enough to solve the dilemma that has burst the housing supply bubble.

The negative equity situation impacting the housing supply is concentrated at the lower end of the housing market. Owners of less expensive homes are three times more likely to be underwater than owners of expensive homes, according to a recent note by economists at Deutsche Bank.

First-time homebuyer demand is growing, but lower-priced homes are in short supply. Many home builders are concentrating on higher priced homes that provide them with a better profit margin.

The bottom line for property managers is this: for the foreseeable future many first-time homebuyers will choose to be renters. Focus your advertising, amenities and attractiveness on this niche market.