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Wednesday, September 27, 2006

Apartment Market Tightens: Panic, Ye Renters!

Yet another study was released this week that allegedly shows the local rental scene "tightening."

The apartment market continues to tighten in King and Snohomish counties, thanks to robust job growth and a trend toward converting units into condominiums, according to a new report from Seattle-based Dupre + Scott Apartment Advisors Inc.
...
Overall, landlords are optimistic, the research firm said, with three in four surveyed planning to raise rents by 4.7 percent over the next six months. Buoyed by the economy, the average rent for the Puget Sound area is rising, up 5.6 percent to $856 from $811 a year ago.

In preparing its apartment vacancy report, the research firm surveyed roughly 80 percent of properties with 20 or more units. Results do not include new apartments or properties undergoing extensive renovation.
I find it quite interesting that this study only focuses on complexes of 20 or more rental units. What this means is that it totally fails to account for individual condos or homes being rented out. As flippers become unable to sell, and 100%-financed families find themselves unable to afford their homes, it would seem that individual units are likely to come onto the rental market in greater numbers. Also, as I've said before, a 5% increase in rent is hardly going to break the bank for most people.

In my opinion, one of two things will have to happen to make owning a better choice than renting once again (the way things should be).
  • 15-20 years of 5% rent increases, while home prices stay flat
  • a few years of 5-10% home price declines
Or some combination of the two, which is what I believe is most likely.

(Puget Sound Business Journal, 09.25.2006)

7 comments:

Matt Rivett said...

I find it quite interesting that this study only focuses on complexes of 20 or more rental units

I do as well. This basically focuses the study like a red-hot blow-torch on the impact of condo conversions and NOT the impact of said 'robust job growth' which is a catch-all leftover from the heady-days of Realtor™ speak. Hmm... yes, what an amazing finding. As you take away supply artificially demand and prices go up!!! Voulais!

This isn't rocket science. Condo conversions are the blight of the housing bubble and one of those reprecussions that seep like a bad disease from the euphoric zealot "gotta get in! gotta get in!" crowd to us wise bubble sitters...

It will settle out eventually, but I think that most of the rental market in Seattle is fairly nominal and considering the ground its had to make up just to match inflation over the past 6 years of the bubble, 5% is nothing really.

Surkanstance said...

Rental data we are seeing from around the country bears out the thesis that there is going to be some anomalous pricing behaviour as the housing market straightens itself out.

Rents might go up as more people decide to hold off on purchases, and rental investory is taken off the market by landlords hoping to cash out by selling at high prices. Eventually, however, there will be a huge rise in rental inventory as home-owners start feeling the pain of holding property, with no income stream, that no one is interested in buying (at the prices they expect).

In the meantime, welcome to the roller coaster life of renting. But at least it isn't as nauseating as owning. :)

Eleua said...

Eventually, however, there will be a huge rise in rental inventory as home-owners start feeling the pain of holding property, with no income stream, that no one is interested in buying (at the prices they expect).

Yup.

I just rented a gem. The LL probably would have chartered a limo to bring my family to sign the lease.

Don't believe this tightening rental crapola. Perhaps apartments are tightening, if you reduce your sample size enough, but the SFH market has more and more popping up every day.

45 days until the gray, wet, dark, sloggy, gloom sets in over the PNW. Every day, more Californians get trapped, more FBs readjust to higher payments, and the weather marches onward to December-February.

Got cashflow?

Eleua said...
This comment has been removed by a blog administrator.
Eleua said...

I have to go WAAAY back to my development class ('89), but I figure that the cap rate on my house is between 2 and 3 (provided I still know how to calculate cap rate).

My memory is getting pretty foggy, but can you even have a cap rate with negative cash flow?

Anyone out there know the definitive way to calculate cap rate?

Eleua said...

Never mind.

Cap rate does not consider interest payments or taxes (EBIT).

So, the cap rate for my place is 2.5, but it cashflows for -$2500+/-, so my FLL subsidizes my housing expenses to the tune of $30K (tax free) to live here.

Anonymous said...

Ouch, it looks like there are no caps on rent increases in Washington.

I think the best way to control that would be to write it into the lease. I think a cap of 5% per year would be fair in this climate but if you can negotate for less, go for it.

I was thinking of this issue because my wife and I were forced out of our San Diego condo (eh, we wanted to leave anyway) when our FLIPPER landlord decided to raise our rent $200 (more than 10%).

If... and this is a big IF... I were to rent from a specuvestor/flipper again, I'd probably force him to sign a 2 year lease that guaranteed him a 5 or 10% increase after a year, but also would allow us to break our lease anytime after 12 months for, say a penalty of 1 month rent.

They wouldn't be able to boot us for 24 months. If the property goes into foreclosure, that's another story.

You'll see some of those fantastic properties coming online shortly....