We can all remember it.
Mainly because it wasn’t all that long ago.
A home is ready to market. We list it for rent, and then… BAM.
Multiple applications. The lease is signed within a few days and sometimes a few hours.
Everyone is happy.
That was just last year. Just a few months ago, really.
But things have changed. The rental market is no longer robust, and investors are getting antsy.
Check that… investors ARE antsy.
And we feel it every day, too.
Because of the sudden turnaround, I thought it made sense to provide a State of the Rental Market to give Central Indiana investors an overview of where we are.
How Is The Rental Market Doing Across the US?
In a word: Not great. OK, that’s two words, but you get the point.
This article, written by Housing Wire, leads off with this ominous message:
“The nation’s single-family investment-property sector and the lenders serving those borrowers face some major challenges in 2023 as rent growth is slipping, vacancy rates growing, home-value growth faltering, and a possible recession looms.”
Or, this article from late last year, which headline reads: “US Annual Rent Growth Drops for the Seventh Straight Month in November.”
I’m a member of a few online forums focusing on single-family property management. These are national forums. I recently posted a question and asked how activity was for people across the country. While this is obviously anecdotal evidence, the responses were fairly similar.
Here’s a sampling:
“Feels like our market came to a dead stop!”
“Definitely having to lower rent prices more often.”
“Our market halted in September.”
“Definitely slower and the higher the price, the less interest.”
The Central Indiana Rental Market
Real estate is hyper-local, so let’s drill into the Central Indiana rental market for a bit.
As you likely know, we’re a seasonal market. School systems – the start and stop of the school year – have a major impact on rental velocity.
When school is out, the rental market is on. When school is in session, the rental market usually softens. Clearly, there are exceptions to that, but that’s the general rule.
Prior to COVID, January started our rental season. Quarter four of every year was always slower, but then the new year started, and the market really opened up.
COVID, mainly due to remote learning, changed move schedules. More people were generally staying put, and there wasn’t that big rush prior to school starting to get into a new home.
So, that normal January rush hasn’t really been there for the past few years.
But, the rush always comes.
And, even though we’re really slow right now, I’m confident the rush will come. The question is: When? Because at this point, it’s safe to say that we’re in a new normal, and the traditional rental cycle is likely no longer.
What Exactly Happened Last Year?
Last year was nothing short of remarkable.
After a somewhat slow first quarter, things REALLY picked up in the second quarter.
Days on Market (DOM) is obviously the best indicator of the strength of the rental market. Our DOM in the first quarter of last year was 31. That’s fairly “normal” for our market but nothing special.
The next six months, however, which spanned quarters 2-3, were on fire. To wit:
- April: 13
- May: 22
- June: 8
- July: 14
- August: 11
- September: 10
But beginning in October, things slowed considerably. Our average DOM skyrocketed to 50 during the final three months of the year.
And it wasn’t just us. The average DOM pulled from our MLS system was nearly 60 days during that timeframe.
Because of our seasonal slowdown, we weren’t necessarily surprised by the jump in DOM. While things were definitely slower than a normal fourth quarter, we did expect things to pick up as we entered 2023.
Where Are We Today?
As we’ve seen more recently, the floodgates didn’t open in January. While our activity has picked up a bit, our Leasing Department is hardly overwhelmed.
We record tons of metrics related to leasing activity. We review them weekly and monthly to get a better understanding of the rental market.
The number one metric to measure market activity, in our opinion, is showings per available home.
Showings Per Available Homes
This is a pretty straightforward metric. We simply take the number of showings for a given week divided by the number of homes available for showings. In the middle of May 2022, we were at 3.57 showings per available home. In the final weeks of 2022, we were at .30.
So far this year, we’re averaging around 1.4 showings per week per available home. That’s well off the levels in May, but a nice increase from December. Again, better, but not great.
Why Are Things Slow?
Outside the normal seasonality, a main driver in this slower market could be a smaller overall Tenant pool.
That doesn’t mean there are necessarily fewer Tenants. It means that fewer Tenants, because of rising rent rates and perhaps even the rising costs of moving, are simply staying put.
Our internal renewal rates have risen. Renewals are wonderful things for investors, because vacancy is a cashflow killer. But, when most people are opting not to move, it does have an impact on rental activity.
Predictions for the Remainder of 2023
I’m a glass-half-full guy.
At the same time, it’s important that we’re realistic about the rental market and where things may trend.
We’ve written on this a bit and even did a podcast on the topic.
Here are some thoughts:
- Expect a slow first quarter. Last year’s first quarter wasn’t great, and there’s nothing in the market right now that suggests this year will be any better. In fact, it will likely be worse. Homes will take longer to lease, and there will be continual pressure on prices.
- Expect the middle months to be strong. Again, I think quarters 2 and 3, as always, are where the activity will begin to pick up. However, like last year, do not count on multiple applications, minuscule days on market, and top-dollar pricing. Instead, expect your home to take longer to rent and expect to take less than you might expect.
Generally speaking, expect things to be tougher in 2023.
What is T&H Doing to Get My House Rented?
We’re extremely proud of the rental marketing program we’ve instituted. Here are a few of the highlights:
- Premium Zillow listings. We pay a lot of money each month to Zillow to ensure our listings get premium placement with Zillow, which is, by far, the number one tool rental prospects use to find their next home.
- A 24/7 Leasing Line. We utilize a service that answers calls from prospects 24/7 and helps answer questions about a number of different topics. So, if someone is interested in learning more about a rental property at 2:30 a.m. on a Saturday, they can. Getting a live person is an ever-dwindling experience for would-be Tenants, so this service matters.
- MLS Listing. We list all homes on our local MLS, which opens the home up to potentially thousands of different Agents who can show the property.
- Weekly Property Reviews. Every property we have listed is reviewed weekly by our leasing team. What’s happening with other rentals in your neighborhood? Time to reduce price? Time to stay put? We’ll review each property and advise accordingly.
- Self-Showing Service. We allow prospects to self-tour our properties seven days a week, 12 hours a day, using Tenant Turner. While this system is expensive, it will rent your home more quickly.
What Can I Do to Help Get My Property Rented?
Simply put: listen to us. I know that’s easy for me to say and sometimes difficult for you to hear. But, we’re the experts and you hired us for a reason.
If we advise that the home needs to be painted, allow us to paint it. You don’t want to go to market in this environment with a subpar product. It needs to shine
If we advise that the price needs to be reduced, reduce it. It’s better to reduce $50 per month than to suffer another month of vacancy.
In the end, we’re on the same team and have the same objectives, which is to get your home rented as quickly as possible at a fair market rent.