The real estate market is complex and influenced by various factors, but some trends are more likely than others to exert meaningful pressure on the performance and value of rental property. TOP TEN STATES FOR RENTAL INVESTMENTS IN 2024
After decades of positive population and economic growth, a reversal of fortunes (particularly in California) has forced many investors to reconsider the long-term prospects for West Coast residential
rentals. Conversely, non-coastal Western states, Texas, and the Southeast have all benefited from positive trends, partially at the expense of the Golden State.
Migration Patterns A continued outflow of residents from the West Coast due to factors like high living costs, job opportunities, or quality-of-life issues, have already impacted housing demand. A long-term decrease in population may lead to a surplus of available homes, putting downward pressure on prices. Economic Challenges Job losses, punitive taxation, wage stagnation, and/or economic uncertainty can lead to a slowdown in the real estate market and potentially lower property values. While lower homeownership rates may prop up rental occupancies in the short term, landlords of SFR rentals may no longer enjoy the same long-term appreciation potential. Elevated Interest Rates If higher interest rates persist, borrowing simply may not be an option for many households in states where homeownership (or buying a first rental property) is already expensive. Basic laws of economics dictate that higher debt costs will decrease demand—particularly among first-time homebuyers—thereby driving down prices for entry-level homes (the same types of properties that represent most of the rental market). Natural Disasters and Climate Change The West’s susceptibility to natural disasters like wildfires, earthquakes and droughts also impacts real estate values. Properties in high-risk areas may see decreased demand or face challenges in obtaining insurance, affecting both their net operating income and future market value.
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