Rents to Drop in Seattle in 2008?
Rents are creeping up just a bit this year. Will rents to continue to edge up, or will they drop as the Seattle housing market levels off in 2007-2008?
Here's the sobering news for real estate investors who were counting on double-digit price increases and think a recovering rental market is going to bail them out:
"The glut of U.S. properties for sale is about to hit the rental market.
A record number of homeowners who can't sell condominiums and houses are competing for tenants with the country's biggest apartment owners, led by Chicago-based Equity Residential, said Jack McCabe, the founder of Deerfield Beach, Fla.-based McCabe Research & Consulting.
Vacant rental apartments rose to 6.1 percent in the U.S. during the first quarter, the most in almost two years, even as the average monthly rent reached a record $991, said Sam Chandan, chief economist of New York-based real-estate research company Reis."
http://seattletimes.nwsource.com/html/r ... ts06.html'
Here's the sobering news for real estate investors who were counting on double-digit price increases and think a recovering rental market is going to bail them out:
"The glut of U.S. properties for sale is about to hit the rental market.
A record number of homeowners who can't sell condominiums and houses are competing for tenants with the country's biggest apartment owners, led by Chicago-based Equity Residential, said Jack McCabe, the founder of Deerfield Beach, Fla.-based McCabe Research & Consulting.
Vacant rental apartments rose to 6.1 percent in the U.S. during the first quarter, the most in almost two years, even as the average monthly rent reached a record $991, said Sam Chandan, chief economist of New York-based real-estate research company Reis."
http://seattletimes.nwsource.com/html/r ... ts06.html'
Comments
It's a different picture in the Seattle area, where the strong economy and demand for housing have dropped apartment vacancy rates to their lowest in six years. The vacancy rate is 3.9 percent in King County and 4.0 percent in Snohomish County, according to figures recently released by Dupre+Scott Apartment Advisors in Seattle. The average rent for King County is at $946 a month, and for Snohomish at $854.
there is the nation, and then there is Seattle. And Seattle means just Seattle, or King County, or the Seattle MSA, and sometimes a single block in Ballard. It depends on which statistics work best, and which side of bed I get up on in the morning.
Just like home sales, which are down for King County, and up for Seattle. See, there Seattle is different, but King County is part of the country. But for rents, King County is different, and Seattle is part of that.
Do you see?
Please check your facts before posting.
First, rents are not skyrocketing. They're barely keeping up with inflation. In case you missed it, the PI just had a story about how renting is probably a better financial decision than buying currently, despite the slight increase in rents. Also, as anyone who rents using craigslist can tell you, the actual rents people are paying in this city are even lower than the ones cited.
Second, the fact that rents are starting to go up is exactly what occured everywhere else. Is it a sign the market is turning? We don't know yet.
Third, most serious national real estate observers and economists - including the ones quoted in the articles you have posted - are now talking about the "Pacific Northest lags" theory. The fact that rents are starting to creep up is one sign. The only people not talking about this work for the real estate industry, and even they are starting to worry. It's really no longer a question of "if" we follow along. It's just a question of when and how much.
Fourth, when the market turns rents will drop. If the past is any guide, Seattle's own version of this event may be even more pronounced than in other cities.
I looked at 20 years of data for the 4-county Puget Sound Region comparing the change in rent vs. the change in housing prices. The correlation between the two is 28%. In other words, very slight.
So Shug can keep posting about rents, and others can keep arguing about the data (which I agree is probably crap) - but fundamentally, the premise of the argument is FLAWED. The reality is that history shows that rents in Seattle pretty much move independently of home prices. Tried 'em one year staggered, two years staggered, rents ahead of housing. Zip, zilch, nada. Results barely out of the range of random.
I used to be of a mind that they were inversely correlated - but stand corrected. The facts indicate this whole topic is pretty much a tempest in a teapot.
Rent Housing
1986 6.6% 3.6%
1987 7.2% 7.2%
1988 5.9% 6.9%
1989 7.4% 19.5%
1990 8.2% 22.7%
1991 5.8% 1.1%
1992 3.7% 1.4%
1993 3.4% 6.3%
1994 2.0% 4.3%
1995 2.0% 3.2%
1996 2.8% 2.4%
1997 6.0% 5.6%
1998 7.3% 9.2%
1999 5.5% 9.5%
2000 5.4% 6.1%
2001 5.8% 2.1%
2002 0.6% 6.4%
2003 -0.7% 4.3%
2004 -1.2% 10.1%
2005 2.0% 15.4%
2006 4.3% 11.0%
Correlation: 28.1%
Actually, they're moving faster then inflation. A 9% increase last year. Inflation is about 3%:
Seattle joins $1,000 club for average Western rents
Seattle gained that dubious distinction for the first time, rising to one-thousand-four dollars a month ($1,004) -- a 9 percent increase from the previous year. The other seven markets in the thousand-dollar club are all in California.
Right. This is the strongest evidence yet that a real-estate crash is right around the corner. Right on cue, Seattle is following the pattern that played out in the rest of the nation, with vacancies falling (and rising rents) right at the top of the boom as increasing numbers of people decided not to buy into the attrocious prices of the bubble, and inventory is lost with landlords trying to cash in on the boom (condo conversions anyone?).
The next step (over the next couple years) is for inventory to slowly creap back into the rental market as many of the speculators find they can't unload their properties.
Actually, I think it's evidence of nothing. Until I see a market by market comparison of rent changes vs. home appreciation, I think that's a baseless assertion.
History for Seattle says there is little or no relationship between rents and home prices. See my post above.
I'd love to see a cross-market analysis - but without that it's about as meaningful an assertion as Shugy's.
Q: What city has average rents of $1,100? In other words, higher than Seattle.
A: Compton.
That $1,000 club's not sounding so special any more.
Interesting but does it answer the big questions? I'd say the jury is still out on the exact connection between rental price and house price, though it's obviously not 1 to 1.
That data you have basically confirms what we already know from recent trends, right? Skyrocketing house prices but rental price barely budged.
I think there must be a correlation between rental prices and interest rates dating back to 2002 though:
http://mortgage-x.com/general/historical_rates.asp
Fewer people had to rent so demand dropped off. I would guess rents at the higher end slowed the most as interest rates dropped, but I don't have this data.
There is also undoubtedly a connection between rental property supply and rental price. Also, between home price and rental supply. What it is exactly, I don't know.
George - I bet you are on to something there. Compare 1 year ARM rates to rents and I bet you get a better model - theory being that the marginal buyer is likely to take the cheapest loan.
Given that, comparing median price to rent increases is probably not the right thing either. Renters-->entry level homes, typically - so probably appreciation in the bottom quartile. Might be something there as well.
I haven't seen either of those data points (1 year ARM history or Bottom Quartile home appreciation) so I'll just posit it as a theory for now
However - even if you cherry pick a period (2002-06) the median price appreciation doesn't correlate too well with rent increases. Only 51% - so given that the it doesn't hold over a longer period, and the model is still not that good for the BEST you could find - so I think the causal link between median price and rent increases is still "busted" as they say on the Discovery Channel.