Expect Renting Costs to Rise Along With Home Prices
Why has home building slowed down, along with the number of Florida home loan applications being filed? Prices across the state have increased significantly, leading analysts to believe that apartment renting will heat up as 2006 progresses.
“This will be a good year for landlords,” says Greg Willett, vice president for research and analysis at M/PF YieldStar, a consulting firm serving the multi-housing industry. “There will be rent growth as vacancy rates come down. Landlords feel comfortable enough now to start raising rents again.”
According to Willett, whose firm tracks 57 markets, rents will likely rise between 5 percent and 6 percent in 2006.
Several factors are contributing to landlord optimism, but they mostly come down to the fact that more Americans are being driven into the apartment market due to the increased expense of home ownership - a greater number of Florida home loan “losers” have been created as a result.
The changing housing market
Home prices appreciated at an average of nearly 9 percent a year from 2001 to 2005, far surpassing increases in rents, which averaged only 2 or 3 percent a year. The soft rental market coincided with the housing boom, which drew millions of Americans into home ownership, reducing the demand for apartments.
But the hot home market is cooling off. David Lereah of the National Association of Realtors is predicting home price increases around 5% for 2006 – about the same amount that rents will rise.
The higher end of the rental market took an especially hard hit during the housing boom as more affluent Americans saw the value of buying real property as an investment as well as a place to live.
“There has been a big cut in the number of higher income renters” says Willett. “Many people used to be renters by choice. Now most renters are by necessity.”
Those renters by necessity will probably be joined by many more over the next months. High home prices and rising Florida home loan rates mean that hundreds of thousands of potential homebuyers cannot afford to buy a single-family home or condo, according to Brad Inman, founder of Inman News Service, which covers the real estate industry.
“Not only that,” he says, “but lenders are tightening up their lending criteria, leading to fewer qualified buyers.”
Those who can’t buy will rent.
Most expensive rental markets
The fastest-rising rents in any U.S. city for the 12 months ending March 31 were in Fort Lauderdale. Rents rose 12 percent there to $1,151.
That was still considerably less than the increase in Fort Lauderdale home prices during 2005, when the median price soared 28.8 percent, according to the latest data from the Office of Federal Housing Enterprise Oversight.
Other illustrations of rental markets lagging behind home prices occurred in West Palm Beach, where selling prices jumped 28.3 percent during 2005, while rents rose 12.3 percent to $1,104. West Palm rents stood at $1,107 after the first quarter of 2005, up 10.5 percent year-over-year.
Also included within the top 10 markets in the country with rising rents are Tampa and Miami. As the number of people applying for a Florida home loan decreases, more and more potential buyers will settle on renting until prices level out.
