Finding an apartment is harder — and pricier

[meshugy]

Apartment rents throughout the central Puget Sound area are the highest in years and vacancy rates are tightening — narrowing options for renters who increasingly are finding themselves also priced out of homeownership.

Blame it on a strong economy that's creating apartment demand.

Blame it on weak apartment construction activity that isn't meeting the demand.

Vacancy rates are lowest in King and Snohomish counties, at 3.9 percent and 4 percent, respectively.

Those are the lowest rates for the two counties since March 2001, and they demonstrate a clear tipping in favor of landlords. A 5 percent vacancy rate is considered neutral between renters and building owners.

"Vacancies are mostly lower because our region has seen continued job growth and in-migration in the past year," Scott wrote in the April issue of his newsletter, The Apartment Advisor.

Statewide unemployment is at its lowest level since the late 1990s. In metro Seattle, the 4.4 percent jobless rate for March is what most experts would regard as full employment.

[sniglet]

This is further evidence that a big Puget Sound real-estate downturn is in the offing. Just as we have seen in other regions of the country, rental inventory becomes pressured right at the top fo the market, as everyone rushes to buy, and landlords decide to cash in by selling rental properties as residences.

Eventually, however, this rush to buy residences collapses on itself as the demand is consumed, and the remaining people who still haven't bought begin to balk at the incredible prices being asked. At this point properties begin to come back on the market as rentals, when the flippers are unable to re-sell them for the substantial profits they had hoped.

This is exactly what has played out in places like California and Florida, and now we are seeing it here. It will just take a while for all the investors gobbling up Seattle condos to start to give up the goal of selling for tidy profits, and start renting to stop the bleeding.

[deejayoh]

Yes, it seems that rents will generally rise as the house prices go down, due to the fact that they are almost perfect substitutes.

From

It is interesting to compare the year-over-year change in single-family home prices with the change in apartment rents. The chart below lists the top fifteen major Western US metropolitan areas with the greatest year-over-year change in median single-family home prices and corresponding changes in apartment rents. One might expect that those "hot markets" with the highest increases in single-family home prices would experience similarly high increases in apartment rents.

An examination of data from RealFacts' quarterly survey of rents, however, reveals this is not the case.

Astonishingly, four of the markets with the greatest increase in home prices - Boise City, San Francisco, Portland and Seattle - actually saw apartment rents decline.

In Las Vegas, where home prices skyrocketed 52 percent, apartment rents only rose 2.6 percent. Although rents rose a relatively robust six percent in Riverside, single-family home prices climbed 38.5 percent. In the booming southern California markets of Orange County, San Diego and Los Angeles, where home prices were up roughly a third, rents increased only three or four percent.

We are just seeing the flip side of this now.

Econ 101 for a music major:

Substitute good


In economics, one kind of good (or service) is said to be a substitute good for another kind insofar as the two kinds of goods can be consumed or used in place of one another in at least some of their possible uses. Classic examples of substitute goods include margarine and butter, or petroleum and natural gas (used for heating or electricity). The fact that one good is substitutable for another has immediate economic consequences: insofar as one good can be substituted for another, the demand for the two kinds of good will be bound together by the fact that customers can trade off one good for the other if it becomes advantageous to do so.

Thus, an increase in price for one kind of good (ceteris paribus) will result in an increase in demand for its substitute goods, and a decrease in price (ceteris paribus, again) will result in a decrease in demand for its substitutes.

[B]

If this statistic is accurate... the additional cost over the course of a year is....

Let's count.

If it's gone up from $850 to $950, no small rent hike, that costs... an additional $1200 a year. Inflation is a bitch. That is a pretty good percentage jump.

Compare my out of pocket costs to say, having the furnace repairman stop by even once, on a ballard moldbox? Or having a leaky heating oil storage tank replaced/soil deconamination, like a friend of mine unexpectedly recently needed to ~8 months after he bought his Equity Rocket Ship (true story). This cost him somewhere in the thousands. (Hey, at least he didn't have to pay a 3-6% 'commission' to the 'furnace broker', too :)

So, sound the alarms! Rents are up due to strong demand at the top of a business cycle! We certainly haven't seen this before! Actually, I'd propose that not only is the demand not as strong as the top of last cycle, but that a speculative bubble for housing has caused many apartments to temporarly become converted to condominiums, largely due to greed. This too shall pass. I know of several conversions that have NOT worked out, and are shifting back to rentals. This is both in Special Seattle and Special NorCal.

[mike2]

[meshugy]

[Darwin]

I think I have read that the rental rates are not high enough to keep up with the real estate market, and now that the rental market is picking up, due to the fact that they can't afford to buy something in say... Seattle, they are having to rent and pay more.

Wow... so the rental market is catching up to the price of homes. That, to me, and I am not economics professor, sounds like a normal self-adjusting market.

Shocking. Maybe we aren't in a bubble after all?

[deejayoh]

Hello - WAKE UP -

The point is that Rents and Home Prices have moved in opposite directions in the past, and since they are substitutes... will in the future.

I realize the logic is probably lost on you - perhaps you can see that in the national context, as housing is cooling down - rents are taking off. Refererence your own link

Why do I bother?

[george]

These numbers prove one thing: the Price/Rent ratio is now so out of whack it's easy to see why so many people are choosing to rent rather than buy despite the availability of cheap credit.

I'm not even talking about a post "bubble" downturn, which typically could last 7 years or before we even hit bottom if it happens! We can't predict the future, but we can know with a lot of certainty that the rent/buy ratio is insane.

That's causing some pressure on rents, but not enough to save landlords as their double digit returns return to normal levels or even flatten out this year and next?

Buying a house to rent it out is a terrible investment (as everyone here knows) without those returns compared to the stock market at current prices. So what happens when the smart money gets out? Let's say a 5- 20% drop in housing investments or second homes?

The fact that rents are just starting to inch up a hair also does not change the new equation for new homeowners: a lot of renters could be better off after 30 years in the current market.

The evidence is clear if you look at the New York Times rent vs. own calculator. You need to have a free account to see it here.



Just figure out what your house would rent for (if you own) or sell for (if you rent), and the run the numbers for yourself.

In one dream scenario: 700K house, 30% down vs. extravagant rental at $2300 a month. You can also up the investment return (under "advanced") to 8-10 percent, which is below average annual market returns. Even if you leave that setting as-is at a modest return; and up the home price increase to 6% a year, you are better off renting after 30 years.

Again, what this shows is the the Price/Rent ratio is why so many people are now choosing to rent rather than buy. It doesn't matter if there's a bubble or not. These numbers just remind us that renting is the obvious financial choice in this market, unless you've got 100s of thousands of dollars to burn and don't care.

The first post here sounds to me like a Real Estate agent trying to scare renters into buying at what may well be the peak of the market

[Darwin]

In one dream scenario: 700K house, 30% down vs. extravagant rental at $2300 a month. You can also up the investment return (under "advanced") to 8-10 percent, which is below average annual market returns. Even if you leave that setting as-is at a modest return; and up the home price increase to 6% a year, you are better off renting after 30 years.

I don't think you go about renting a house that cost you $700k. And if you did, it would be a bad mistake. You can purchase a $700k home and rent it on average for $3500 a month, today.

Now, you take that $3500 and you increate it over years... you should be able to have positive cash flow after five to ten years.

The stock market? I haven't seen anything like Black Friday in the Real Estate market.

[meshugy]

DJ...I think your theory is full of holes. Housing prices AND rents can both rise in tandem if there's enough demand.

Let me give you a little lesson in Econ 101: Supply and Demand

Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy ata certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.

So let's see what happened when I first moved to Seattle back in 97. Vacancies dropped to 1% because the dotcom boom was in full swing. It was impossible to find anything...the worst I've ever seen. And it looks like we're headed back to that sort of rental market were the landlords hold all the cards.



From a renter's standpoint, the results of a large local apartment survey reporting the lowest vacancy rate since 1989 along with rising rents, can only be worrisome.

Simultaneously, apartment vacancy rates in all those areas have hit eight-year lows of 2 percent or less - which effectively means the "no vacancy" signs have sprouted big time.

-- Overall, rents have gone up 4 percent from a year ago, with more than half that increase coming over the winter months, traditionally a time when apartment managers try to avoid raising rents.

-- Some 78 percent of all managers plan rent increases over the next six months. If their anticipated 5 percent increase becomes reality, it will be the largest increase since 1990, and will push overall area rents up almost 4 percent by fall.

According to DJ this is the first sign of a tanking housing market...but let's look at the MLS records for 1997:

King County Apr 1997 YOY Res appreciation in was a very healthy 6.81%

Did the lower vacancies and higher rents signal the end of the housing market? Nope...


King County Jan YOY 1998 Res appreciation was 10.81%

King County Jan YOY 1999 Res appreciation was 9.21%

King County Jan YOY 2000 Res appreciation was 9.93%

Etc, etc...till this month which will most likely be around 12% YOY.

So what happened DJ, there obviously was no correclation between a tighter rental market and a slowing housing market back in 97, why would there be now?

[sniglet]

[deejayoh]

2001-05 home increase = 8.1%
2001-05 rent increase = 0.7%

so yes, if we had huge increases in demand - they could both go up. but we don't. and they haven't.

that's all I have to say about that

[mike2]

We'll see what happens once these new condo buildings get their COA's. Both Canal Station I and NoMa were supposed to be occupied by now. Both are empty. I'll bet the owners that plan on occupying the units themselves are going to be vacating some place in the neighborhood - and the non-owner occupied units are going to be competing against every other high end rental for tenants.

The condo boom and conversion boom certainly lead to a general improvement in quality to the average rental unit - at an increase in price. If you want to rent something with granite counters and bamboo floors, there are alot of choices. If you want something for under $800/month it's not so easy.

[george]