Analysts Predict Rental Housing Glut

With mortgage activity stagnant, a glut of Florida and U.S. properties for sale is about to hit the rental market, experts predict.

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, founder of Deerfield Beach, Fla.-based McCabe Research & Consulting LLC.

Metropolitan New York, where demand for housing exceeds supply, may be the only place where rents increase, albeit at a slower pace, he said.

“Competition already is forcing the big apartment owners to offer concessions like two months free rent,” McCabe said.

Vacant rental apartments rose to 6.1 percent in the U.S. during the first quarter, the most in almost two years, even as average monthly rents hit a record $991, said Sam Chandan, chief economist of New York-based real-estate research company Reis Inc.

Vacancies will continue to rise through 2007, he said. New York had the lowest number of vacant units in the first quarter.

Nationwide, 2.8 percent of houses for sale were unoccupied in the first quarter, the highest since the Census Department started collecting the data in 1956.

Unsold properties on the market totaled a record 3.45 million in 2006, according to the Chicago-based National Association of Realtors.

“Unsold properties being turned into rental units are creating a shadow market that’s driving up the vacancy rate and slowing the growth of the rental market,” Chandan said.

“Areas that saw the most speculative investing, particularly in Florida condos, will see the biggest pressure on rents.”

Anthony De Silva said he’s not happy becoming a landlord.

He bought a two-bedroom condo on the ocean in Hollywood, Fla., 18 months ago expecting to sell at a $100,000 profit.

Instead, he’s looking for tenants at $1,700 a month.

“I don’t want to sell for less than I paid, so my only choice is to rent it,” said De Silva, 45, a New Yorker who made $80,000 in November 2005 by flipping, or selling quickly, his first Florida real estate investment, a condominium in Fort Lauderdale.

At the time, home prices had gained 29 percent from a year earlier, the peak of the market in that area, when Florida home loan demand was at its absolute highest.

The increase in competition from landlords like De Silva is spurring apartment owners to offer enticements.

Lincoln Green Apartments, a Philadelphia complex that rents units from $840 to $1,370 a month, is offering two months free rent for people who sign a one-year lease. Citrus Park Apartments in Tampa, Fla., has the same deal.

“Increasing vacancies does not bode well for rental incomes,” said Nabil N. El-Hage, a professor at Harvard Business School in Boston. “We’ve seen a softening in apartment REITs as a result.”

Frustrated sellers who become landlords have created an inventory of for-sale properties that could derail a recovery in Florida mortgage demand, along with housing sales, next year, experts believe.

SOURCE: Denver Post