As Florida Mortgage Loan Demand Slow Down, Rental Market Caught in Downturn
Perhaps now is not the right time to apply for a Florida mortgage loan; whether you’re interested in a home or condo, payments and interest rates are simply too steep. Therefore, you’re wondering about the state of the rental market.
It breaks down as follows: Where demand is highest - in the affordable segment - the supply of apartments and rental houses is tight. But at the higher end of the market, there is a glut of properties in need of tenants.
“It’s hot and cold,” said Scott Corbridge, president of Sarasota Management & Leasing. “Certain pockets of the market are doing well and others aren’t.”
Observers say speculative interest, which gripped the Florida real estate market during the past few years, is to blame. Investors initially bought single-family homes in the hope of benefiting from the rapid appreciation in values. When prices of properties rose too high, they turned to condominiums and converted apartments.
Most of the new landlords figured it would be easy to rent their properties at prices that would cover their costs until it was time to sell.
But it is now dawning on them that the rental market is not a no-brainer, and selling out during the current sales slump is not an option unless owners are prepared to dump their properties at significant discounts.
Apartment rentals priced too high
In the meantime, people who need apartments most - service-sector workers living on low incomes - are not finding anywhere to live within their means. To resolve the imbalance, their salaries either will have to rise or rents will have to come down. It’s possible new regulations on FHA Florida home loans will also make it easier for this sector to buy.
“Eventually, the market will adjust,” said Al Holmes, the president of the Sarasota Landlords Association. “But during that time, low-end renters and landlords who bought properties at high prices are going to get their butts kicked.”
Evidence of the disequilibrium in the Florida real estate market can be most clearly seen in Sarasota County. In this area, the average rent of apartments in complexes with more than 100 units reached $989 during the second quarter of 2006; a 19.9 percent increase from the average rent of $825 in the second quarter of 2005.
At the same time, average occupancy in Sarasota apartment complexes fell to 90.7 percent in the second quarter of 2006 from 98.2 during the same period a year earlier.
“We had several apartment complexes that were converted to condos in 2005 and that took apartments out of the market,” explained Sue Louis, senior vice president for Coldwell Banker’s Sarasota Bay region. “Some of those apartments have since come back on the market and inventories have increased.”
The problem, Louis and others say, is that the new owners of the units want to cover their mortgages, taxes, insurance and maintenance costs. So they are offering units for as much as $200 more than the market will bear.
As renters refuse to pay such high prices, the units remain empty.
“There’s a six-month supply of condos on the market right now,” said Corbridge of Sarasota Management and Leasing. “That means that if no new rental units come to market, it will take six months to rent all the units we already have.”
One way to resolve the glut would be for owners to sell their properties and get out of the rental business. Just find someone who is pre-approved for a Florida home loan and take a small hit financially. However …
“There’s no one buying,” said Holmes of the Sarasota Landlords Association.
Sales have slowed sharply. The real estate market is flooded with inventory. Concerns are everywhere.
“Owners will either have to drop their prices to a point where it makes sense for the next landlord to invest, or hang on until rents rise or real estate sales pick up.”
Of course, landlords could also drop rent. Either way, Florida mortgage loan seekers and buyers WILL be back shortly. As they do, both the sales and rental markets will benefit from the return to normalcy.
