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Rental Home Surplus Hits Even The Hottest Markets

Posted by Admin on September 25, 2018
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A recent article from Bloomberg shed light on a surprising shift taking place in some of the nation’s largest metropolitan areas, where the rental market supply has begun to significantly outweigh demand.

Recently, the most notable example of this change occurred in Seattle, where median rent prices have remained constant YoY when comparing this past July to the same time last year.  According to Zillow data on apartments, condos, and houses, median rent prices had previously increased by 5 percent YoY in 2017 and by 10% YoY in 2016.  While Seattle is currently experiencing the biggest decline among the top 50 largest metropolitan areas in the country, this same trend is impacting cities nationwide.  In fact, rent prices in Nashville and Portland, Oregon have even begun to decrease.  As for the country as a whole, rent prices YoY have increased by an underwhelming .5 percent as of this July.

Zillow senior economist Aaron Terrazas weighed in on the subject, and was quoted in the same article, saying, “This is something that we first started to see two years ago in New York and DC.  A year ago, it was San Francisco and most recently, Seattle and Portland.  It’s spreading through what once were the fastest growing rental markets.”

Consequently, tenants in urban rental markets throughout the US now have an abundance of attractive properties to choose from, as new apartment buildings with impressive amenities are going out of their way to acquire customers.  Terrazas explained that rents are beginning to soften even on high end homes within city limits.  Keep in mind, renting out properties continues to pose a challenge with an increasing number of millennials choosing to buy more affordably-priced homes in the suburbs.

Last month, Realtor Roy Powell witnessed firsthand just how much the market currently favors tenants.  After looking at multiple different options in the Seattle area, Powell’s clients, two women in their 20s, ultimately chose a home in an apartment building with a rooftop dog park, air conditioned gym, and newly remodeled seven-story tower after being offered a free year of underground parking as well, which normally costs $175/ month.

 

Powell mentioned the competition has become so intense that even condo owners with just one or two units are now offering concessions as well to attract tenants.  As Powell elaborated, “A lot of them are going from absolutely no pets to allowing pets.  That’s a big deal in Seattle, where everybody has a dog or cat.”

 

But allowing pets is only the tip of the iceberg when it comes to building-owners fighting for the rental market.

 

Case in point: Batik, a new apartment building in Seattle with 195 units, views of the downtown skyline and Mount Rainier, a massive rooftop deck with a garden, a community barbecue, and an off-leash pet area.  As if the view and amenities weren’t enough, tenants at Batik are now receiving Visa gift cards with as much as $6,000 as an incentive to rent in the building, with half pad at signing and the remaining amount received the next month.

 

Batik was launched this previous March by Microsoft co-founder Paul Allen’s company, Vulcan Real Estate.  Lori Mason Curran, a spokeswoman for the company, explained in the article, “There is tremendous competition for tenants.  Over time, we think long-term demand is solid.  But there is so much supply tamping down rent growth right now.”

 

Interestingly, the influx of rental properties in Seattle has also been amplified by the recent boom of apartment construction.  Since state laws enable condominium buyers to more easily sue developers for defects in the construction, most developers have instead focused their efforts on building apartments.

 

Perhaps even more fascinating is the fact that over the past few years, US multifamily apartment construction has even reached levels that have not been seen since the 1980s.  Furthermore, impressive rent gains have driven owners of condos and single-family homes to take on tenants as well.  According to data from Zillow, projects just opening now were first planned by developers several years ago when rent gains throughout the country were peaking at an annual gain of 6.6 percent.

 

Growth began slowing down first in the most expensive markets as new supply became available and tenants struggled to afford the quickly-rising cost of rent.

 

In the year through July 2015, rents in the San Francisco area jumped a startling 19 percent, though now rests in the same area have been flat since July.  Similarly, New York rents, which increased by 7 percent in 2015, have been decelerating for a few years now, and even declined by .4 percent this past July.

 

According to a national rent-versus-buy index of 23 cities produced by Florida Atlantic University and Florida International University faculty, this year is the first time since 2010 in which it’s become easier to build wealth over an 8-year period by renting a home and investing in stocks and bonds, as opposed to buying and accumulating equity.  The fact is that high home prices and rising mortgage rates are increasing the cost of homeownership.

 

In markets like Denver and Dallas particularly, this can be especially bad news for sellers, as renting has become a much more favorable option in these cities, according to real estate economist Ken Johnson of Florida Atlantic University, who co-created the Beracha, Hardin & Johnson Buy vs Rent Index.

 

Johnson explained that the difference between the current market conditions in these cities today versus 10 years ago is that neither market is currently experiencing the kind of speculation and risky lending that inflated the last housing bubble.  Johnson noted, “What’s interesting is that cities that suffered the least in 2007 and 2008—Dallas and Denver—now are experiencing the most exposure to risk.”

 

It’s also worth noting that a rise in homeownership among millennials is occurring simultaneously as the rental market slows down.  During the second quarter of this year, millennial homeownership rose to 36.5 percent, up from 35.3 percent just one year earlier.

 

(Read the original article from Bloomberg.)

 

Do You Own A Rental Property In The San Francisco Bay Area?

 

At Intempus, we take pride in our ability to help property owners attract qualified tenants and make the most of their rental homes.  If you’re interested in learning about how we can help you market or maintain your income property, please get in touch with our friendly, knowledgeable staff today!

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