September 12, 2009

Real Estate Trends: Rental Markets

Proverbs 20:14 - “Its no good, its no good!” says the buyer; then off he goes and boasts about his purchase.

The economy has been wreaking havoc on on rental owners as well as home owners. The great unwinding of the debt economy and the collapse of available credit has caused job loss, underemployment and a recession psychology causing consumers to pull back, not being sure if they are next to loss work. Afraid of catching a falling knife, prospective buyers are waiting on the sidelines.

The housing industry has been pinging property owners to try and get a sense of the degree of difficulty out there. I wanted to share with you some of what these surveys reveal.

high-low-vacancy-rates surveyed more than 3200 apartment owners and found that 88% of property owners who participated said that job losses are contributing to vacancy rates. 50% said would-be tenants can’t afford rent or are trying to save, and 45% said that the trend of more people doubling up with roommates is causing units to sit vacant. general manager, Peggy Abkemeier, points out that many homeowners that would normally sell are finding themselves reluctant landlords, bring even more inventory to market

Reacting to soaring vacancies, 68% of landlords said they were lowering rents and 68% also said they were giving one or more months of rent free; 38% said they were reducing deposits; and 18% were offering upgrades or allowing more leniency for breaking leases or changing status, according to the survey. Fifteen percent are offering storage or parking at reduced rates, and 8% are relaxing pet policies.
Another survey, from Move Inc., which operates, found that 39% of people would sign a 12-month lease if it came with 2 months of free rent, and 18% would sign for free utilities for two months including water, electricity and gas. Fourteen percent said a free flat screen or LCD television would get them to commit to a lease for a year.
Loopnet surveyed 2,000 members in July. 10% of the surveyed participants expect a recovery in property sales this year, down from 33% in the May, while those who expect a recovery in property transactions in 2011 is up from 25% to 33%. Almost 60% expect prices to bottom between fourth quarter of 2009 and third quarter of 2010
AFIRE is a non profit of international investors. Their 2009 Mid-Year Survey indicates that international investors are turning their attention back to US real estate. 75% of those surveyed had not yet invested in 2009. However, 66% planned to invest in US real estate before years end. Equity investors expect to place seven times more equity in the remainder of 2009. Debt investors expect to place three times more debt. 31% surveyed, said they were more optimistic than they were at the beginning of the year; 16% were more pessimistic; and 53% said they felt about the same. All in all, it looks like foreign investment money is revisiting and I hope it is further confirmation that we are building a base for an upturn.
And yet another survey by TransUnion, which screens credit for property-management companies, found that half of property managers are having difficulty locating qualified renters, compared with last year. 81% are concerned they won’t find reliable tenants for the rest of 2009.

Looking Past the Problem

Income property, whether it be a duplex or a 20 unit building does makes sense in the long term, if you can ride it out. True, job loss has put a cap on rents and equity is declining for now. In fact vacancies climbed to 7.6% in the second quarter, and the apartment sector may not begin to see positive growth until late 2010 or 2011. But if you check the REIT commercial property index you will see its up better than 35%, because the commercial property difficulty we are in the midst of will end and there will be good investment opportunities. Buyers are waiting for the dust to settle and judging by the extraordinary price move of the index, its on the horizon. Read more...

Thanks for Reading

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