Property investors continue to face challenges as rents are falling in the US rental market, but investor activity is still on the rise.
In the US rental market, the median asking rent fell year-on-year in July across all bedroom counts, according to a recently released report from Redfin. This is the first time that has happened since June 2020.
The national median asking rent sat at $1,647 during July, which was $53 down from the all-time high in 2022. Month-on-month the median asking rent also went down 0.2% in the US rental market.
Rents across US rental market
In July, rents remained steady for studio and one-bedroom apartments, falling just 0.1%, and rents for two-bedroom flats decreased by 0.3%. With the biggest drop in rental prices, rent for apartments with at least three bedrooms fell by 2.4%.
In the US rental market, all three of these categories were down by at least $50 from the all-time highs recorded in the past two years. The increased supply of apartments with three bedrooms or more led to rent prices dropping quicker, and there was lower demand for bigger, more expensive units.
At the same time, the average vacancy rate in the US rental market remained at 6.6% for the four consecutive quarter and is now at the highest level since 2021. Sheharyar Bokhari, Senior Economist at Redfin, said: “Rents have recently steadied—or even dropped slightly—because of the sheer number of apartments built over the past two years.
“Construction is slowing down and prices will eventually start rising again, but now is still a good time for renters to find a deal, especially families looking for an apartment with at least three bedrooms.”
A rise in investor purchases
Additional research by Redfin showed that US investor purchases increased domestically by 3.4% year-on-year in the second quarter of 2024. Property investors bought one of every six homes that sold, having purchased $43bn worth of properties. This is up 13.7% from a year earlier and the biggest increase in two years.
Investor activity in the US housing market is stabilising after recent years of ups and downs. During the pandemic housing market boom of 2021, investor purchases more than doubled. After rents dropped and home values ate into profits, the number of properties being bought by investors plummeted almost 50% last year.
Bokhari commented: “One reason real estate investors are coming out of hibernation is to take advantage of robust demand from renters.
“Elevated home prices and mortgage rates have pushed homeownership out of reach for a lot of Americans, which is fueling demand for rentals. Investors, many of whom can afford to pay in cash to avoid the sting of high mortgage rates, are cashing in on that demand.”
Diversifying investment portfolios
With some of the ongoing challenges facing the US rental market, property investors may look abroad for opportunities to diversify. The UK housing market in particular has weathered the recent storms of political and economic uncertainty better than expected.
For US property investors currently looking at their options, focusing on the significant demand within the rental market in the UK could prove to be lucrative. Tenant demand remains strong as it significantly outnumbers supply, and this can boost the rental yields investors can achieve.
US property investors can also essentially secure a discount on UK property compared to when the pound was performing more strongly. This can also impact returns investors can achieve compared to buying in the US housing market.
Because of this, US property investors will likely remain one of the most prominent overseas buyers in the UK. The country has long-term appeal and provides opportunities for investors to effectively diversify their property portfolio abroad.
Some US investors even have a particular motivation or link to invest in UK property, including due to business, lifestyle or education reasons, so it’s not always just about attempting to make a profit.
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