There is a new style of “post-foreclosure backlog”. Housing markets are recovering and the foreclosure crisis is now years behind us. So how is the past crisis still affecting markets and real estate investors? In many areas one of the most interesting question marks for the future are rentals.

Although we are years into the recovery from the foreclosure crisis, rental markets in many areas remain larger than they have ever been. During the peak foreclosure years, approximately 2007-2009, rentals expanded sharply as many former homeowners lost their home, along with their equity and their mortgage qualification. Real estate investors responded, increasing the number of rental houses and apartments.

But now, in most major metropolitan areas, in spite of the recovery the demand for rentals continues to grow, and so do the rents. Younger people are enjoying increased hiring and salaries and more of them are graduating and/or moving out of parental homes and into the rental market.

The rising rents stemming from the demand for rentals has meant that in many areas owning is less expensive than renting. But, ironically, high rents may actually be locking renters out of saving enough for a down payment. Today as many as half of all renters are putting well over 35% and even 40% of their income toward rent, and as a result they are saving and spending less.

So what’s the forecast for rentals? Many of those who lost homes during the wave of foreclosures are already back in the home-buying market. Overall, the economic recovery with rising incomes, more job stability and stronger consumer confidence may encourage renters toward home ownership.

Against these statistics are softer trends that are encouraging more development of upscale urban rentals. Generation Y is more interested in urban living than any generation before it. They prefer downtown work and recreation, as well as commuting by walking, biking and/or public transit. And, Gen Y is emerging in numbers that rival the baby boomers. Major metropolitan areas anticipate a growing demand for upper-income rentals. High-rise apartment construction continues apace.

The answer for rental investors for the near future is a very local one. Do neighborhoods in your area lean toward Gen Y? Or do they cater more to mature adults in or nearing retirement? Let the national statistics keep you alert to trends in your community and chosen markets, and adjust your portfolio strategy accordingly.

How does the number of rentals in your area compare with 5 years ago? Are more properties converting into rentals – or converting from rentals to ownership?

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