A week ago, I blogged no the increase we are seeing in the local rental market.
Taking advantage of an increase in home owners-turned-tenants, apartment landlords are raising their rents and expect to continue to do so.
During the first quarter, monthly apartment asking rents increased 2.2 percent year-over-year, reaching an average of $1,070, according to Reis, a property research firm.
Vacancies are at lows and developers are trying to rush projects of multifamily housing to meet the increased demand from renters, but continued constraints on lending has put the brakes on many projects, particularly in smaller markets.
"I’m optimistic about the multifamily sector, certainly for the next two years," Kevin Thorpe, chief economist at Cassidy Turley, a commercial property brokerage, told Investor’s Business Daily. "We’ve entered a period of sustained rent growth.
The reason behind analysts’ optimism: Young professionals are increasingly turning to renting and more than 3 million former home owners, who have been displaced by foreclosures or short sales, are turning into renters.
Demand for single-family home rentals is increasing too, according to CoreLogic. A four-month supply of single-family homes is now available for rent, which is down from five months a year ago, according to CoreLogic data.
Source: “Rents Rise as Apartments See Demand,” Investor’s Business Daily (June 7, 2012)
With rents rising faster than last year, the picture for residential real estate investors is getting even better than it already was as a result of once-in-a-generation prices and low interest rates, according to the founder of a leading Internet platform for investors and real estate professionals.
Greg Rand, CEO of OwnAmerica, downplays concerns over near term price declines and urges investors to take a long view of the opportunities.
“This is a long term investment,” says Rand, who differs with what he calls the “get rich quick” approach to investing. “Rents are a steady return on your investment through the years, leaving you with an attractive asset when prices improve. And they will. The best profits in real estate accrue to long term investors who take a long term view.”
Rents are growing at a 5.17 percent annualized rate compared to a 4.72 percent at this time last year Assuming effective rent grows at the same rate in the next four months as it did in 2010, the full-year total would fall just below the historic highs of 2000 (6.18 percent) and 2005 (5.81 percent), according to a report from Axiometrics Inc., a provider of data and analysis on the apartment market.
With 1.4 million new renters this year, apartment construction can’t keep up with demand. Tenants, especially former homeowners forced from their homes because of the economy, are increasingly turning to single family homes owned by investors, especially in high foreclosure markets like Las Vegas.
During this year, investors have accounted for between 20 and 40 percent of monthly existing home sales, according to surveys of Realtors by Campbell/Inside Mortgage Finance and the National Association of Realtors. Yet, the investor market share may increase even more next year.
A survey by Realtor.com in April found that by a three to one margin, investors plan to be more active in their local markets compared to typical homebuyers in the next 24 months, and 69 percent of investors say it’ll be easier to find properties in the near future.
Most investors are newcomers. Fifty-nine percent (59%) said they’re new to real estate investing, with 33.5 percent considering their first investment purchase and 8.5 percent in the process of buying and selling their first investment property. Another 17 percent said they just completed their first transaction and plan to make more. Only 36.5 percent have experience in more than one property transaction.
Author of “Crash! Boom,” Rand argues that even in the Great Depression, owning real estate was always better than not owning real estate. Holding real estate for the long term has always been a formula for success and most family wealth has been accumulated by purchasing real estate and keeping it in the family for many generations. Real estate plus time usually equals success.
There are 6 million people who went from being owners to being renters, Rand says. “The stars are aligned to make this the best time in modern history to be a landlord,” he wrote in his book.
If you are interested in exploring investment opportunities, call me @ 206-713-3244 or email Emmanuel@EmmanuelFonte.com
“With rental demand rising and apartment economics improving, the multifamily sector is a positive signal for the U.S. housing industry,” writes Frank Nothaft, Freddie Mac’s Chief Economist, in the October 2011 U.S. Economic and Housing Market Outlook.
An increase of 1.4 million households moved into rental housing in the year ending June 2011–a 4 percent rise in the number of tenant households in one year alone, the Census Bureau reports. Meanwhile, the home ownership rate dropped about 1.5 percent over the past year.
“While home sales remain sluggish despite the most affordable purchase market in decades, households have turned to rental to meet their shelter needs,” Nothaft writes in the report.
The increase in rental demand is due partially to some households who may have faced a short sale or foreclosure of a home they owned, Nothaft notes. However, he says most of the rental demand is coming from young and newly formed households, who are postponing home ownership. The home ownership rate for household heads under 30 years of age has fallen the sharpest in recent years.
As demand increases, vacancy rates are dropping and rents are rising. New construction for larger apartment buildings is also increasing, as property sales rise. Dollar-sales volume of apartment buildings was at its highest point in the second quarter since 2007, according to Real Capital Analytics. New construction starts of apartment buildings with at least 20 dwellings is also on the rise, posting its highest level since the end of 2008 in the second quarter too.
For some time, there’s been reporting on the trend toward residential leasing as the housing sector continues limping along. Leasing is chic and the stigma around it is slowly fading. People that are fully capable of buying are sitting still or trying out new areas of town while others have no choice and are living in rentals due to foreclosure. Either way, “rent” is no longer a cuss word.
Rental rates have been going up considerably over the last year and it appears it is accelerating, rising at a rate beating most economists’ projections for 2011. A new report released by real estate search site HotPads.com reveals that residential rental listing prices have jumped 6.7% from June 2010 with the fringe listings of studio and five bedroom apartments escalating most rapidly.
HotPads.com says that “this is a telling trend which may indicate a growing demand for rental housing among first time renters and larger families” but we see it more as a supply and demand issue in that studios and very large rental units are less common (low supply) and because rentals of all sizes are in high demand right now, it appears a premium is being set on studios and five bedroom units.
In most cases, the rapid rise in rent has occurred in 2010 rather than a slow increase over the past twelve months. We are seeing consumers flocking to their chosen social networks, flustered that their landlord is screwing them over and are being met with the harsh reality that it isn’t their landlord, it is the entire market. Times have been rough for landlords, is this the time to recoup the losses met since 2008? In some markets, rents have been held down but national trends are allowing an increase as perception of the market is softening.
Rental trends graphed:
Let me know how I can help: firstname.lastname@example.org