Investors in the United States will have to withstand two to three years of low rental growth before the market picks up again, the chief executive of a US lender has predicted.
Derrick Barker said there’s currently an influx of supply coming to the market thanks to construction projects that started three years ago in cities like Austin, Houston, Charlotte and Atlanta – that’s keeping rents down.
That will change in a few years however, as higher interest rates have put a dampener on new housing developments.
Barker is CEO of fintech firm Nectar, which finances property purchases across the US,
He told PropertyWire: “Rents were growing really quickly, but now landlords are competing with each other so they can’t raise rents.
“Some developers are not going to be able to refinance and properties are going to fall into foreclosure, meaning banks will end up seeing them at a lower price.
“We are at the beginning phase of that.
“As it stands people are struggling to get financing, which is reducing the number of new projects being built.”
The Federal Reserve cut the national interest rate by 0.50% to 4.75-5.0% last week, but Barker felt this reduction won’t make a difference when it comes to stimulating new developments.
What’s more, he doesn’t expect interest rates to fall significantly in the short-term.
Barker theorised that the Federal Reserve cut its rate to stave off rising unemployment, so only a serious rise in unemployment would lead to steeper rate cuts.
Where and how to invest
For those who are willing to invest in the current market, Barker recommended buying apartments and focusing on the suburbs.
That way you’re able to get properties cheaper and benefit from higher yields, he said.
Barker reckoned there’s lots of rental and house price growth left in Midwest cities, like Minneapolis.
A growing work from home culture is contributing to this trend, as people are moving out of some of the most expensive cities in the US in search of a better quality of life.
Barker recommended investing in markets you know, as he himself owns 500 units in Atlanta, Georgia, where he grew up.
He added: “A lot of markets right now are having trouble pushing rents, in places like Austin, Houston and Atlanta, because there’s so much new property.
“But even so if you know the markets, you know how to operate well, you can get a good deal.”
If you know and live around local markets you can quickly snap up properties from developers, he added, while you can show up at your local city council if you need building permits to carry out a renovation.
US Election
The United States Election takes place on November 5th, with Kamala Harris competing with Donald Trump to become the next US President.
However unlike with UK elections, Barker reckoned who’s in power has very little impact on US property.
He said: “In the US I don’t think the elections have a big impact. Real estate is driven by supply, demand and interest rates. That’s not going to change.”
He argued that state or city-wide policies have more of an impact than national changes.
For example Barker said California is working on state level legislation to make it so municipalities have to allow multi family permits.
In other words, this means NIMBYs would have a harder time blocking new developments, as Barker added “this type of deregulation needs to happen more”.
This would have more of an impact on the Californian property than any policy Trump could introduce.