The Impact of Local Market Trends on Rental Pricing

Key Takeaways

• While the knowledge and commitment of a property owner can directly impact the potential pricing of a rental, it’s important to be aware of the other factors at play.
• Property owners who are ill-informed of how their rental pricing can be impacted might be left to deal with vacancies and turnover due to insufficient prices.
• The best way to maximize success as a rental owner is to partner with a property management team like Vineyard Property Management.

Investment properties do not operate in a vacuum and their performance does not depend entirely on the abilities of their owner. Several factors within the larger property market in which the property exists impact its profitability. In other words, your local real estate market can help or hurt the performance of your investment properties.

Your actions as a landlord can make your property more desirable and you may even improve profits by reducing rental expenses, but ultimately your success still depends, to a large extent, on the overall trends in the property market. This is why smart landlords always look to the dominant market trends to guide all of their investment decisions.

How do these market forces operate? Which factors have a direct impact on the performance of your rental property? Why is it important to understand these trends?

• Understanding market trends give you a holistic view of the property market in your area
• Instead of operating with a limited frame of reference, you become more strategic
• You gain the ability to forecast future market trends with some degree of accuracy
• This lets you adopt a proactive investment strategy rather than simply reacting to events
• You can make buy/sell decisions that go with the trends instead of against them
• Overall, you improve rental profits and accelerate the growth of your property portfolio

Continue reading this guide by Vineyard Property Management to learn more.

Market Forces That Influence Rental Pricing

Supply And Demand

With a smaller pool of rentals to choose from, renters compete more intensely for available properties, forcing the rental rate to go up. This is common in areas with rapid population growth. Conversely, an oversupply of rental units intensifies competition between landlords, forcing them to lower rents. Sometimes, instead of affecting the entire property market, these trends may impact a specific type of rental property. For instance, an area may experience scarcity of studio apartments (with rising prices for these types of units) and still have an oversupply of duplexes (which causes their prices to fall).

Job Market Strength

This refers to the relative availability of medium- to high-paying jobs within a specific location. Cities with strong job growth, across many sectors of the economy, will see faster population growth, growing rental demand and higher rental rates. The more diverse the available jobs in the area, the stronger this trend is going to be. Conversely, as jobs move out of a city or region, perhaps due to the closure or relocation of a major employer, the rental demand in the area will fall, followed by a decrease in rental rates.

Social Amenities And Infrastructure

Where there is good infrastructure, businesses soon follow, and population and social amenities come with it. These processes can also work in reverse. Governments may build more infrastructures to serve existing industries. The presence of better infrastructure leads to the development of parks, better schools, health clinics, community centers and improved transport systems. All of these serve to attract more people to the area, forcing the government to build even more infrastructure, which causes even more population growth, and on and on.

Interest Rates And New Housing Developments

With low interest rates more people take loans to buy properties for personal use or as rentals. Lower interest rates also mean more new housing projects. The overall impact of these is that rental rates remain stable or fall. Higher interest rates have the opposite effect; investors may sit on their capital resulting in fewer new housing projects. This causes rents to go up. Interest rates are set by the Feds, in response to the general economic conditions in the country. Job growth and population growth rates play a huge role in the Fed’s policies.

Local Regulations

Local regulations make it easier or harder for property investors and developers to build or invest in new rental properties. Zoning laws, for instance, may increase or limit the supply of specific types of rental properties in some parts of the city, pushing rents up or causing the rental rate to fall. Rent caps may harm rental profits, discouraging investors from acquiring more rental properties. Cities may also introduce sustainability or energy-efficiency standards that make the process of bringing new rental properties onboard difficult. This will result in shortages and spikes in rental rates.

Renter Preferences

Factors like family size, average age of the population, education, income levels, etc. play a role in the kind of rental properties that individuals and businesses in an area prefer. If there is an abundance of remote workers, there will be a notable preference for larger homes with home offices. More affluent renters want neighborhoods that are friendly for walking. Younger renters, such as college students or new grads often prefer proximity to sport and entertainment centers. Depending on the population of renters looking for these types of amenities and the number of available properties that meet the criteria, rental rates may go up or down.

Seasonal Demand

Seasonal variations in demand also impact the rental rates for different property types. For most cities, the peak demand season is between June and August. This is when most families plan their move. This is also the period with the most number of job relocations. Rental rates start to fall after the month of August to reach their lowest levels in January, before starting to go up again with the approach of spring. In locations with seasonal tourist attractions, peak and low seasons may follow a different pattern.

Comparable Properties

The number of similar properties in the area, their physical condition and the quality of their amenities also affects rental demand. Comparable rental properties are typically priced similarly, with rentals that are in the best condition occupying the higher spectrum and those in poor condition are priced lowest. By looking at the leasing speed for similar rentals, landlords can determine the most competitive rent for their property, as well as the features that renters in the area are willing to pay the most money for.

Bottom Line

When studying the impact of rental market trends on rental rates, it is important to keep in mind that none of these factors operate in isolation. Instead, it is the interplay of several of these factors that causes the visible impact on the housing market.

If you’d like some more guidance operating your rental in Georgia, reach out to the professionals at Vineyard Property Management. Our expert team can assist with everything, including rental pricing, market analysis, and more. Contact us today!