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Housing Slump Spurs A Rental Revival

BY KATHLEEN DOLER

As home values fall and sales slow, a rental revival's arising.

Across the U.S., rental housing vacancies are down and rents are up. Owners who can't sell are becoming landlords, at least for now, hoping to wait out hard times.

Rents on all types of residences will increase by 4% this year and next, predicts the Center for Housing Policy in Washington, D.C. Real estate brokerage Marcus & Milli-chap's updated 2007 apartment market report forecasts a 4.5% rise this year and a vacancy rate of 5.8%.

Several factors contribute to a strong rental market. Foreclosures are forcing former homeowners into rental housing. Tighter loan standards are keeping would-be home buyers with poor credit from qualifying for a mortgage. Job growth, especially in key cities such as New York and San Francisco, is feeding the economy and the rental market.

"The primary driver for the Manhattan rental market is the ability of Manhattan to make jobs," said Halstead Property leasing director Fritz Frigan. Though the employment market's strong now, job losses spurred by the mortgage crisis are mounting.

"We don't yet know how much of that will affect Manhattan," Frigan said.

Luxury Manhattan residences that Halstead manages are apt to get rent increases of 5% to 7% this year, he says.

Over in Denver, jobs growth and foreclosures are pushing up the market, says real estate broker John Dunn, whose Dunn & Co. handles rental management as well as sales.

"In the past few years, we had a big drop in rental rates — anyone could buy a house, so we saw a lot of that," he said.

But now the credit crunch is making buying a home difficult, and the rental market is benefiting. The Denver metro area's second quarter vacancy rate for all residences except big apartment complexes slipped to 4% from 7.1% a year ago, according to the University of Denver's Daniels College of Business. Average rents rose nearly 2% from a year ago, to $946.

With houses tough to sell but demand for rentals rising, some Denver homeowners are becoming landlords.

Dan Wolfers left the area for a new job, but found no buyers for his home even after dropping the price. So he's elected to rent it out. He traces the area's ready supply of tenants to the mortgage crisis and resulting credit tightening.

"People just aren't getting the loans and so they're renting," he said.

Evan Slater, co-owner of a Denver townhouse, also took his property off the market and is getting it ready to rent. Hopefully it will "be more valuable if we wait a little bit," he said. "We'll wait a couple of years and see where were at."

Out in Northern California, home sales are languishing at their lowest level in two decades. In September, sales of new and resale homes and condos fell 40.1% from a year ago, according to DataQuick Information Systems. One of the reasons cited: tightened credit markets.

But the latest tech boom is fueling jobs growth in the region, and a boon for landlords.

"Hiring is going through the roof in the San Francisco Bay area," said J.J. Panzer, property manager and broker at Real Management Co. there. He's renting a lot of properties to employees of Google, based in nearby Mountain View.

DataQuick says Southern California home sales are dismal and were the slowest for any month for a six-county region since the firm began tracking the data in 1988.

But Elly Nesis, owner of a brokerage and rental management company in Inglewood, Calif., isn't overly exuberant about the rental market either. He says rents in the beach areas are strong, but they're flat to down in the eastern areas of Los Angeles. And he's worried about the future, given that new condos aren't selling in L.A.

"Those units will come into the pool," he said, adding that it could keep rents flat or push them down.

The changes in the rental end of the real estate market are just starting to happen, he says, and will become more apparent with time.

Of course a bright rental market isn't good news for everyone. Renters are paying more, and low-income renters are struggling to keep up. The Center for Housing Policy says the number of working family renters paying more than half their income for housing more than doubled to 2.1 million from 1997 to 2005.

Post Date: 11/1/2007

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