South Carolina could see an influx of home rentals as the state’s previously hot housing market continues to cool, some industry experts say.
The state’s rental market has struggled with low inventory and rising prices for years, much like the housing market. But the housing market has started showing signs of slowing down, meaning some property owners could start holding onto homes longer and rent more out to get a steady stream of income, experts say.
A recent National Association of Realtors report states there are signs the housing market might be cooling.
The high prices themselves, along with rising mortgage interest rates, have begun to slow buyer activity. Home sales declined for the third consecutive month due to soaring homeownership costs.
“Existing home sales were down 2.4% from the previous month, while pending sales fell 3.9% as of last measure, extending the trend of recent months. Economists predict sales will continue to soften in the near future, which may put downward pressure on home prices,” the report states.
Janet Fields, CEO and co-owner of Oak Trust Properties, a Charleston-based property management company, said that with the housing market cooling, more owners are holding their properties instead of selling.
“This could lead to a long term trend of investors holding onto properties to meet investing goals, rather than being tempted by the possibility of a quick sale and quick profit,” Fields said. “The speed of the market over the last two years proposed many obstacles for buyers such as low inventory, fierce competition and fast turnarounds. As owners hold onto their properties, many opt to rent them out as a way of making money until they’re ready to sell.”
Scott Wallace, founder of Scott Properties of the Midlands, a Columbia-based property management company, said owners are thinking twice about selling as the housing market shifts.
“They can sell and go and pay for the next house in the market we’re in, or the other choice is to hold onto it and create a cash flow,” Wallace said. “They really feel like the prices of houses now will not drastically drop … they think we’ve stabilized.”
Joey Von Nessen, research economist at the Darla Moore School of Business at the University of South Carolina, said the state’s rental market has faced the same sort of issues as housing.
“Low inventory levels combined with high demand due to increases in population and job growth have been driving prices up for most types of housing,” Von Nessen said. “Whether people are looking to rent or own, the price of housing continues to rise.”
According to rent.com, the average rental price for a one bedroom apartment in Columbia is $1,042 as of June 30, up 12% from a year ago.
However, with the Federal Reserve actively raising interest rates to reduce inflation, that should slow U.S. economic growth in the second half of 2022 and possibly ease rent prices, Von Nessen said.
“To the extent that this also cools the job market, rental rates may begin to stabilize,” he said. “Remember that job growth is generally the best single predictor for the demand for housing, so the performance of the labor market is a key metric to watch.”
Fields said if more rentals appear on the market, that could help with prices.
“Yes, if we see an increase in supply, the market will self-correct and slow the rise of rental rates,” Fields said. “More supply with the same level of demand means lower prices.”
However, she added that though she expects more rentals to become available as interest rates rise, she doubts there will be enough this year to completely flatten the increase in rental rates.
“That said, an increase in available rental properties could mean the average number of days on market (the amount of time between the last tenant and the next tenant) will slowly extend back to what we saw prior to 2020, leading to a leveling out of rental increases,” she said.
Wallace agreed that it would take an influx of new properties for rental rates to drop, but isn’t convinced there will be enough in the near future to have a drastic impact on prices.
“I don’t see us going back to where we were before, but we might go down slightly and stabilize,” he said.