The Case For Rental Revival and Surplus Of Homes Cools Prices
The case for rental revival
Have you been wondering whether to invest in a modest rental property?
Good news: Rentals are not only showing signs of life for the first time in years, but demographic and economic indicators point to an improved rental market for the next decade.
Robert Sheehan, consulting economist for the National Apartment Association, predicts that apartment-vacancy rates nationwide in buildings of five or more units will decline from 10.2 percent to 10 percent by year's end, the best level since the fall of 2001. That means fewer competitors if you own a duplex, triplex or fourplex.
Apartments will likely see rent increases of 4 percent this year, the highest since 2002, according to Witten Advisors LLC, a Dallas consulting firm.
"From a market perspective, rentals are starting to look a lot stronger than they have in the past few years," says Rachel Drew of the Harvard Joint Center for Housing Studies, or JCHS. "Vacancy rates are slowly declining, which is, of course, good for landlords, but the rents are going up only modestly, which is also good for landlords but at the same time not detrimental to tenants. Demand is increasing at the same time that supply is stabilizing, so it's good for everybody."
From an investment perspective, residential rental markets have been flat or in decline the past decade, largely due to the double whammy of recession and the single-family housing boom. "I heard someone say, 'Anyone who can fog a mirror can buy a house,'" says Drew. "The pool of owners to be drawn from rental housing has been largely tapped."
Despite the exodus to homeownership, fully one-third of American households (34 million) reside in rental housing, according to the JCHS. That figure has remained remarkably consistent during the past decade as the influx of immigrants replaced those who bought their own homes and the conversion of rentals to condos helped offset new construction, primarily in the nation's suburbs.
The baby boomers have been the wild card in the deck. As they matured and raised families in homes of their own, they created a post-baby-boom lull that cast a big chill on the rental market. However, flush with the largest intergenerational transfer of wealth in history, they also have been gobbling up rental properties by the neighborhood-ful, either directly or through real estate investment trusts, or REITs, in anticipation that their children, the so-called "echo boomers," will shortly be along to take up residence in them.
Surplus of homes cools prices
Good news: Rentals are not only showing signs of life for the first time in years, but demographic and economic indicators point to an improved rental market for the next decade.
Robert Sheehan, consulting economist for the National Apartment Association, predicts that apartment-vacancy rates nationwide in buildings of five or more units will decline from 10.2 percent to 10 percent by year's end, the best level since the fall of 2001. That means fewer competitors if you own a duplex, triplex or fourplex.
Apartments will likely see rent increases of 4 percent this year, the highest since 2002, according to Witten Advisors LLC, a Dallas consulting firm.
"From a market perspective, rentals are starting to look a lot stronger than they have in the past few years," says Rachel Drew of the Harvard Joint Center for Housing Studies, or JCHS. "Vacancy rates are slowly declining, which is, of course, good for landlords, but the rents are going up only modestly, which is also good for landlords but at the same time not detrimental to tenants. Demand is increasing at the same time that supply is stabilizing, so it's good for everybody."
From an investment perspective, residential rental markets have been flat or in decline the past decade, largely due to the double whammy of recession and the single-family housing boom. "I heard someone say, 'Anyone who can fog a mirror can buy a house,'" says Drew. "The pool of owners to be drawn from rental housing has been largely tapped."
Despite the exodus to homeownership, fully one-third of American households (34 million) reside in rental housing, according to the JCHS. That figure has remained remarkably consistent during the past decade as the influx of immigrants replaced those who bought their own homes and the conversion of rentals to condos helped offset new construction, primarily in the nation's suburbs.
The baby boomers have been the wild card in the deck. As they matured and raised families in homes of their own, they created a post-baby-boom lull that cast a big chill on the rental market. However, flush with the largest intergenerational transfer of wealth in history, they also have been gobbling up rental properties by the neighborhood-ful, either directly or through real estate investment trusts, or REITs, in anticipation that their children, the so-called "echo boomers," will shortly be along to take up residence in them.
Surplus of homes cools prices
Surely you've noticed an abundance of "for sale" signs around your neighborhood lately. Home sellers are plentiful, home buyers less so. It's becoming more the norm across the nation as existing-home prices continue to cool, according to the latest quarterly survey from the National Association of Realtors.
Home prices are responding to the improvements in inventory.
"With the supply of homes picking up very nicely in many areas of the country, pressure is coming off of home prices," says David Lereah, NAR's chief economist.
Even so, home values rose at an annual rate of 10.3 percent during the first quarter of 2006, with the median value of an existing single-family home at $217,900. During the first quarter of 2005, the median value was $197,600. The median is the point at which half of the homes sold for more and half sold for less. That 10.3 percent annual growth in the first quarter is down slightly from the 13.6 percent rate in the fourth quarter of 2005.
Yet, even as prices begin to level, many of the nation's metropolitan areas are still showing double-digit growth in home values. The NAR survey showed that 60 of the nation's 149 metropolitan regions experienced double-digit growth, while 12 regions decreased in value. Lereah expects that late summer when he reports the second quarter growth, most areas will be back in the normal rates of price growth -- single digits, not double.
Some of the hottest regions showed marked signs of returning to those norms. The Miami metro area, for example, grew an annual 23.9 percent in the fourth quarter of 2005. The annualized growth for the first quarter, 2006, fell to 11.2 percent. In the Bradenton/Sarasota, Fla., area, which grew at an annualized rate of 30 percent in the fourth quarter of 2005, the first quarter showed a far tamer 11.2 percent annualized growth rate.
Over the top growth over
The days of over-the-top growth in housing prices may be over, but homeownership is still a stable investment. "Consumers generally can expect normal price appreciation for the foreseeable future, providing solid returns over time," says Lereah.
Leading the nation in growth once again was the Phoenix-Mesa-Scottsdale area of Arizona, where the first quarter price of $268,300 is up 38.4 percent from a year ago. Florida follows with Orlando at $260,500, up 34 percent from the first quarter of 2005, and Gainesville, Fla., with a first quarter median price of $210,100, an increase of 31.9 percent in the last year.
Regionally, the West saw the highest bump in home values where existing home prices rose 12 percent to a median price of $344,000. Homes in the Midwest rose by 6.7 percent to $158,800; home values in the South and the Northeast climbed 6.6 percent. The median price in the South was $179,700 and $285,200 in the Northeast.
The most expensive homes in the nation are in California. Residents of the San Jose-Sunnyvale-Santa Clara, Calif., metro area shop a housing market where the median price for an existing home is $746,800, and in San Francisco the price is $720,400.
Shopping for a bargain? Resale prices were lowest in Danville, Ill., where the median price was $52,500
Condo markets
NAR now reports the pricing changes on condos and cooperatives in 56 markets. Co-ops are included in the condo numbers. The national median condo price was $224,100 during the first quarter, which is 5.2 percent higher than a year ago. The national condo price is higher than the median single-family home because of the high concentration of condos in the most expensive metropolitan regions, says Lereah.
Inventory is again a factor. The number of condos on the market has picked up more strongly than single-family homes, says Thomas M. Stevens, president of the NAR and senior vice president of NRT Inc.
"Condos have good fundamentals given the demographics of buyers, with baby boomers focused on the high end and their kids on more affordable units. However, in a handful of areas where there may be an oversupply, prices may level out, so the longer your time horizon the better your investment," says Stevens.
The best growth rate for condos -- first quarter 2006 versus the same quarter 2005 -- was in the same region as the No. 1 growth for single-family homes. The Phoenix-Mesa-Scottsdale area saw condo prices jump 38 percent from 2005 to $179,600. The most expensive condos are in the San Francisco-Oakland-Fremont, Calif., metro with the median prices at $615,300.
Home prices are responding to the improvements in inventory.
"With the supply of homes picking up very nicely in many areas of the country, pressure is coming off of home prices," says David Lereah, NAR's chief economist.
Even so, home values rose at an annual rate of 10.3 percent during the first quarter of 2006, with the median value of an existing single-family home at $217,900. During the first quarter of 2005, the median value was $197,600. The median is the point at which half of the homes sold for more and half sold for less. That 10.3 percent annual growth in the first quarter is down slightly from the 13.6 percent rate in the fourth quarter of 2005.
Yet, even as prices begin to level, many of the nation's metropolitan areas are still showing double-digit growth in home values. The NAR survey showed that 60 of the nation's 149 metropolitan regions experienced double-digit growth, while 12 regions decreased in value. Lereah expects that late summer when he reports the second quarter growth, most areas will be back in the normal rates of price growth -- single digits, not double.
Some of the hottest regions showed marked signs of returning to those norms. The Miami metro area, for example, grew an annual 23.9 percent in the fourth quarter of 2005. The annualized growth for the first quarter, 2006, fell to 11.2 percent. In the Bradenton/Sarasota, Fla., area, which grew at an annualized rate of 30 percent in the fourth quarter of 2005, the first quarter showed a far tamer 11.2 percent annualized growth rate.
Over the top growth over
The days of over-the-top growth in housing prices may be over, but homeownership is still a stable investment. "Consumers generally can expect normal price appreciation for the foreseeable future, providing solid returns over time," says Lereah.
Leading the nation in growth once again was the Phoenix-Mesa-Scottsdale area of Arizona, where the first quarter price of $268,300 is up 38.4 percent from a year ago. Florida follows with Orlando at $260,500, up 34 percent from the first quarter of 2005, and Gainesville, Fla., with a first quarter median price of $210,100, an increase of 31.9 percent in the last year.
Regionally, the West saw the highest bump in home values where existing home prices rose 12 percent to a median price of $344,000. Homes in the Midwest rose by 6.7 percent to $158,800; home values in the South and the Northeast climbed 6.6 percent. The median price in the South was $179,700 and $285,200 in the Northeast.
The most expensive homes in the nation are in California. Residents of the San Jose-Sunnyvale-Santa Clara, Calif., metro area shop a housing market where the median price for an existing home is $746,800, and in San Francisco the price is $720,400.
Shopping for a bargain? Resale prices were lowest in Danville, Ill., where the median price was $52,500
Condo markets
NAR now reports the pricing changes on condos and cooperatives in 56 markets. Co-ops are included in the condo numbers. The national median condo price was $224,100 during the first quarter, which is 5.2 percent higher than a year ago. The national condo price is higher than the median single-family home because of the high concentration of condos in the most expensive metropolitan regions, says Lereah.
Inventory is again a factor. The number of condos on the market has picked up more strongly than single-family homes, says Thomas M. Stevens, president of the NAR and senior vice president of NRT Inc.
"Condos have good fundamentals given the demographics of buyers, with baby boomers focused on the high end and their kids on more affordable units. However, in a handful of areas where there may be an oversupply, prices may level out, so the longer your time horizon the better your investment," says Stevens.
The best growth rate for condos -- first quarter 2006 versus the same quarter 2005 -- was in the same region as the No. 1 growth for single-family homes. The Phoenix-Mesa-Scottsdale area saw condo prices jump 38 percent from 2005 to $179,600. The most expensive condos are in the San Francisco-Oakland-Fremont, Calif., metro with the median prices at $615,300.
posted by !GOD BLESS YOU! at 09:18
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