As Home Sales Cool Off, Rental Costs Rise

It’s no longer a renter’s market.

For years, as a result of the booming housing market, rents have been flat or even declining in cities across the U.S. But as the market starts to cool off, rentals are once again in demand, empowering landlords in many markets to raise rents at a pace faster than tenants have experienced in years. They’re also cutting back on incentives to help lure tenants.

Renters have enjoyed an easy ride for years, but the current slew of rent increases could prove to be a jolt for many Americans, from seniors trying to downsize to recent graduates looking for their own place. Average rents —- what tenants pay after taking concessions into account -— are expected to rise 3 percent this year, according to the Wall Street Journal.

Lee County, Florida, is no exception. The average rent for a nice two-bedroom apartment in Lee County rose 13.9 percent, to $1,017 in 2005. A one-bedroom rose 11 percent to $845 a month. The local rental market has been pushed up by the condo conversion trend, with a total of 5,500 units sold to converters in the past two years.

The pace of change varies greatly from market to market. In a survey of 69 metro areas, 60 markets demonstrated rising rents, with the South Florida housing market — Fort Lauderdale, Palm Beach, Miami and Tampa are all on the list — leading the way. Only nine major markets showed rents flat or falling; Buffalo, N.Y., Charlotte, N.C., Denver, Colo., and others.

Rents in East and West Coast cities are expected to rise the fastest. It’s partly a supply and demand issue, as years of soaring prices (and recent increases in Florida mortgage loan rates) have priced many people out of the market. The portion of U.S. households owning their own home slipped to 68.5 percent in the first quarter from 69.1 percent a year earlier, according to the U.S. Census Bureau.

Still, tenants might be able to find some good deals. New buildings still needing the first round of renters may be more willing to negotiate. It is also worth seeking out individual owners who are unable to sell a house or condominium that has been on the market too long for their liking, and may be looking to rent at a reasonable price instead.

Higher rental costs come as strong job growth in recent years has boosted demand for apartments. At the same time, many apartments have been changed over to condos, reducing the availability of rentals. Tenants forced out of units being converted to condos often have trouble finding another places with similar rents, agents say.

Average vacancy rates dropped to 6 percent in the first quarter from as much as 7.4 percent at the end of 2003, according to Property & Portfolio Research Inc., giving landlords more power to boost rents than they’ve had since the beginning of the decade. Camden Property Trust, a big apartment owner, says it is raising rents in all of its 22 markets.

In Miami, Camden now charges an average of $1,319 a month for apartments, up 7.4 percent from $1,228 in the first quarter of 2005.

Freebies are vanishing, too. United Dominion Realty Trust Inc., which operates in 17 states, says the amount it spent on free rent and other concessions fell 26 percent in the first quarter from the year-earlier period, to roughly $12 million, or about $265 for each new tenant. Over the next 12 months, the organization predicts that percentage will diminish — to practically nothing.

Despite the price increases, renting remains a bargain in much of the U.S. In Las Vegas, Los Angeles and Seattle, the cost of monthly rents are roughly half what it would cost to own the median-priced home. The cost of owning is based on a 15 percent down payment and a 30-year fixed-rate mortgage; property taxes, insurance and/or tax deductions are not included.

Even in some cities where rental costs are rising, individual investors having trouble selling condos and single-family homes are rushing to rent them instead. In some markets, such as South Florida, vacancy rates for large apartment buildings are down and rents are up. However, the supply of condos and homes available to rent in the region is growing as investors clamor to rent out properties they are having trouble selling.

“We’re having a flood of rental properties coming back into the market simply because the investors who bought with the intention of flipping them have not been able to,” said Brenda F. Gerdes, broker-owner of Management Specialists Inc., a property-management firm in Port St. Lucie, Fla.

Agents say individual investors need to be realistic about their asking rents, even if the rent isn’t enough to cover their monthly costs. Robert Fowler, owner of HomeRentalAds.com, a rental Web site, tells clients to base their asking rents on what similar properties are fetching.

With many of Florida’s markets so overvalued, the housing situation is highly volatile and subject to rapid changes. If large segments of the population continue to be priced out of the market, however, rents could go haywire. But, if sellers temper their expectations and interest rates (which influence the Florida home loan market) hold relatively steady throughout the rest of 2006, we could see a return to normalcy, as many analysts predict.