lady investing in real estateEach December, the Buildium Team digs into the research we’ve conducted over the last 12 months to identify the factors that will shape the success of property managers’ businesses in the coming year. We know that it can feel impossible to stay on top of industry trends as the day-to-day realities of running a small business demand your attention. That’s why we’re sharing our predictions for the third year running: To arm property managers with the knowledge they need to feel empowered in a rapidly evolving market. One year ago, we forecast that home prices and rents would begin to moderate across the country, particularly in primary markets like San Francisco and New York City; and that interest in up-and-coming cities like Raleigh and Nashville would be piqued among renters, homebuyers, and investors alike. We also predicted that renters’ increasing socioeconomic diversity and strong appetite for technology would have a major impact on the industry in 2018—and in our annual State of the Property Management Industry Report, nearly two thousand respondents told us that’s exactly what’s taken place. So, what do we foresee for 2019? Keep reading to uncover the answers to the questions that are on all of our minds as we prepare for the year ahead.


This time last year, industry experts and homebuyers had watched home values rise for sixty-five months in a row. At the same time, housing inventory had been shrinking for thirty-five straight months. This past spring, buyers were said to face the most competitive market in history, with listings flying off the market faster than real estate agents had ever seen. Which forces drove the real estate market to this dramatic inflection point? When there’s a shortage of homes on the market, bids are driven ever-higher as buyers compete for desirable listings. A critical juncture is reached when a majority of prospective buyers have been priced out, prompting our economy to seek equilibrium through price correction.


Our take: Based on a number of trends we’ve seen developing in the housing market in recent months—including stagnating home values, slowing home sales, and increased price cuts—we believe that the market will shift in buyers’ favor throughout 2019 and 2020. This doesn’t mean that we’re anticipating a crash like we saw a decade ago: Because there’s a far more conservative homebuying and lending process in place, we expect a slow and steady glide toward more reasonable rates. As a buyer’s market gradually takes hold, property managers can expect to see investors ramping up their acquisition of new properties.


As home price growth recedes from its recent peaks in many markets, a portion of renters will inevitably make the move to homeownership. But even as buying a home becomes more attainable for some, property managers and investors can feel confident that renting will remain an attractive and vital option for a broad swath of the population. In fact, experts believe that a majority of the 22 million households expected to form by 2030 will be renters.


Why is renting surging in popularity? First, our view of homeownership is changing. Rather than being a stop along the way to buying a house, for many, renting is a lifestyle choice. Our idea of the “average renter” is rapidly evolving as the number of seniors, families, and high-income households who rent their homes increases. The growing population of more affluent residents who choose to rent gives property managers and owners an opportunity to generate revenue through high-end units and à-la-carte amenities. At the same time, a formidable blend of economic factors have put homeownership out of reach for many Americans. Today’s prospective buyers face rising home values and mortgage rates, stagnant wages, a shortage of starter homes, and tight credit standards to qualify for a home loan. In addition, many bear the weight of student loan debt and high rents that make it difficult to save up for a down payment. All in all, the need is greater than ever for housing that a larger share of renters can afford: 47% of renters spend more than a third of their household income on rent, and minimum wage workers can’t afford a 2-bedroom apartment anywhere in the U.S.


Our take: A sea change is occurring when it comes to Americans’ attitudes toward renting versus owning their homes. However, the reality is more nuanced than a straightforward rise in renting and decline in homeownership like we witnessed between 2006 and 2016. Though homeownership rates are flat in all but one age group— residents over the age of 65—8 in 10 Millennials aspire to become homeowners one day. Ultimately, then, though some residents choose to rent for the flexibility it provides, homeownership is a financial impossibility for a much larger portion of renters. As a result, while there’s revenue to be made in the upper echelons of the rental market, moderately priced units will be the bread and butter of property managers’ and owners’ portfolios in 2019, garnering steady income and strong occupancy rates as they give millions of Americans a place to call home.


August 2018 marked the sixth straight month of decelerating rent growth across the nation, as well as the first time in six years that rent growth had fallen year-over-year. This slowdown has been particularly apparent in overheated markets like Seattle: a city that led the country with 6% rent growth for the previous three years, then saw rents decrease in 2018.


Why is rent growth losing steam when the demand for rentals is as robust as ever? The answer lies in simple economic principles: In primary markets, the supply has outpaced the demand. New units have flooded U.S. cities due to a flurry of multifamily investment and construction following the end of the Great Recession. Given strong demand from renters, these units should have been absorbed quickly—and this was indeed the case in many cities. However, in expensive metropolises like New York City and Washington D.C., exorbitant building costs meant that rents for these new units were unaffordable for most renters—causing occupancy rates to soften as these high-end properties sat vacant.

Our take: Though rents are still hovering around their all-time highest levels in many places, rent growth has likely hit its ceiling. We see this trend continuing in the year ahead—particularly in major cities where rents have risen to unsustainable levels, pushing residents farther and farther away from city centers. This means that property managers in primary markets whose profitability hinges on steady rent growth will need to evolve their revenue generation strategies for success in the coming year


What happens when housing costs in major cities have outpaced incomes for too long? This challenge has resulted in one of the most compelling trends of the year: On the hunt for affordable places to live, a subset of renters and homebuyers are leaving primary markets for smaller cities and the suburbs.


Primary markets with powerful economies were quick to recover from the Great Recession, helping them to attract workers and families in the mid-2010s. However, in recent years, population growth has been stronger in thriving secondary markets, with residents migrating from expensive coastal cities like New York and San Francisco to inland destinations like Austin and Atlanta. Slower-growing older industrial cities like Pittsburgh, St. Louis, and Philadelphia have also been experiencing a renaissance as emerging tech companies and research universities attract an inflow of highly-educated residents. Why are residents compelled to leave established metropolises for up-and-coming markets? For many, it’s a quality-of-life issue: In addition to the steep cost of living, residents in primary markets face a severe shortage of affordable housing. This pentup demand for places to live has significantly inflated rents and home prices in recent years. As a result, some prospective renters and buyers extend their housing search to outlying suburbs and satellite towns; while others make the move to more affordable metropolises. Meanwhile, in thriving secondary markets, rents and home prices tend to stay relatively affordable for residents even as occupancy rates rise because the supply of housing is far less constrained than in overdeveloped primary markets.


Our take: As up-and-coming markets continue to capture renters’ and homebuyers’ attention in 2019, they also present opportunities for investors looking for a more rapid return-on-investment than they can find in already-established markets; while property managers can expect healthy growth in rents and occupancy rates.


The final trend that we’ll discuss is one that we’ve been tracking for more than a year: A shift in how property managers and their customers view technology. Until recently, technology presented savvy property managers with a toolkit to facilitate efficient workflows and set their businesses apart from their peers’—but this trend has reached a tipping point in the past year.


In 2018, a critical mass of renters and property owners have grown accustomed to a world powered by consumer-grade technology, from retail to ridesharing. This has fundamentally changed residents’ expectations for the experience of renting: Being able to search and apply for rentals, pay their rent, and submit maintenance requests online is a necessity; and having smart home technology installed in their unit is a major plus. In fact, our 2018 survey of nearly 1200 renters found that these preferences persist across all age groups: Millennials, Gen Xers, and Baby Boomers expressed a strong interest in rental technologies across the board. Property managers are also noticing a change in rental owners’ expectations as Intentional Investor clients come to outnumber Accidental Landlords, and as technologies from other areas of the real estate industry slowly permeate the property management sector. In 2019, owners will want to know how their properties are performing in real time—and the ability to gain instant access to this information will influence their decision to work with one property manager over another.


Our take: In the past, technology has been a critical component of a property management business’ success in its capacity to streamline business operations—but in the coming year, technology will need to accomplish far more. In an era where customer service is paramount and the delineation has blurred between ‘personal’ and ‘digital’ realms, property managers need to leverage technology to build strong relationships and enable positive interactions. The property managers who succeed in 2019 will be those who provide an empathy-driven, tech-enabled experience to renters and owners alike.