By Gino Blefari
President & CEO
Intero Real Estate Services, Inc.

Just as housing is expected to grow this year in most markets across the country, rental demand continues to increase and is expected to grow even larger over the next few years. This could actually help fuel some needed changes in the ownership market.

Rental demand is expected to increase by 6.6 million unitsthrough 2016, boosted by 4.2 million new renters entering the market. With investors and others now paying attention to this, there was an interesting bit of news last week that shows how the housing and rental markets may be changing this year.

REO-to-rental housing was cited as the hottest emerging asset class at a recent securitization event in Las Vegas. At its core, this means they expect more REOs to be converted to rental units this year as demand for this type of housing increases steadily.

It’s interesting to think about this when you consider that many markets struggle with inventory for home buyers – especially first-time buyers. But the important way to frame this is to think about the cyclical nature of housing and how all the different moving parts affect one another.

For instance, rental housing has proven to be an important first step on the way to home ownership. When you have local economies that are gradually improving, you tend to see more young people moving out on their own. This type of household formation is important to project and fulfill future demand in the for-sale market.

In addition, many rental markets have struggled to keep up with added demand from those who exited the ownership market in recent years.

Converting REOs to rentals makes a lot of sense for keeping up with demand. But it also could help alleviate some of the downward pressure that still exists on home values in some markets. We’re seeing a natural shift of the market, which will eventually shift back over to home sales.

The one thing this does change going forward is the opportunity. For investors, the rental market has spelled opportunity for years. Whether you’re a mom and pop landlord or a larger institutional investment company, it’s had a big target on it, inviting people in. It seems that 2013 may be the last year to take advantage of that as the demand numbers will lure even more of the big players in.

So if you’re looking to buy an investment rental property, the time is now.

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