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Real Estate News

Rents Are Up, Housing Still Down

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Rents are starting to go up.  According to the Federal Reserve Bank of Cleveland:

Rents are starting to accelerate. Rent of primary residence rose 3.1 percent in December, and has risen 3.5 percent over the past six months. Owners’ equivalent rent (OER) rose 2.2 percent in December and is up 2.3 percent over the past six months. Interestingly, all but one of the regional OER components we use to compute the median CPI posted an increase near 3.0 percent in December (the median component was OER: Midwest, which rose 2.9 percent).

Rents are simply responding to the laws of supply and demand.  Demand for rental properties is up as the number of renters has increased significantly due to the foreclosure crisis and a reduction in the amount of available credit for home loans.  The market is responding to this increased demand for rental units.  According to the US Census Bureau, the number of permits for the construction of multi-family units are up over 50% since December of 2010.

Single family home construction continues to be in the dumps.  New single family home construction permits are down over 75% from the boom time highs, as this chart shows:

What does all this mean for the average investor?  First, if you own rental property, keep it.  Rental inflation and thus rental profits should increase over the coming year.  Second, continue to buy and hold rental properties if you can.  Third, if you’re a flipper, buy and hold investors are going to be your buyers.  Fourth, continue to be very careful with retail flips.  Very few areas are viable retail markets right now so choose wisely.

It is more and more obvious to me that real estate investors are going to be the ones that get us out of this mess.  I just hope the banks and our government begin to realize it as well.

Will 2012 = Less Vacancies & Higher Rents?

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The vacancy rate for apartments in the US fell to a 10 year low at the end of 2011.  According to Reis, Inc., the vacancy rate fell to 5.2%.  That rate is down from 6.6% a year ago.

 

And as the supply of available apartments decline, guess what goes up?  You got it, rents!  The average monthly rent for the US as a whole increased 2.3% over the past year to just over $1,000.

 

If you are planning on going to Yale University in New Haven, CT, start shopping early for a place to live as they had the nation’s lowest vacancy rate.  New York City, Minneapolis, Portland Oregon and San Jose California rounded out the top five.

 

California took the top two spots for effective rental rate increases.  San Francisco and San Jose were number one and number two with Chattanooga, TN, Austin, TX and New York filling in the top five slots.

 

Jobs are the key to these rent increases.  Both San Francisco and San Jose are seeing new jobs in the tech sector, while Randy Shelly with the Chattanooga REIA explained to me that “he is not surprised” as the Chattanooga area has had a new Volkswagen plant come on line and an Amazon.com distribution center make plans to expand.

 

It seems like 2012 may be shaping up to be a good year for landlords.  I can say that here in Memphis any apartment I have that becomes available has been re-rented fairly quickly in what are supposed to be the slow months of November and December.  But, I have not generally been able to push rental rates up yet.  What have any of you readers experienced?

 

UPDATE

Here is a link to an article in the Daily News which somewhat echos what I said above.  Rents have been pretty much stagnant in the Memphis area as have vacancy rates according to the article.  Perhaps the decrease in vacancy rates I have experienced is due to my particular sub-market.

The New Real Estate Bubble?

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A new real estate bubble appears to be inflating,  No not in housing, but in farmland.

See here  and here.

Farmland, where the printed money is flowing.

 

 

 

 

 

 

 

 

It’s funny that they blame China for this.

Can’t wait for the first episode of “Flip this Farm.”

Remember the 80’s when this happened the last time?

Expect renewed interest in the Farm Aid concerts when the bubble bursts.

 

Fewer New Households Being Created

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Since the Great Recession began in 2007, the United States has witnessed a drop in the number of new households being created.  Moody’s Analytics estimates that there are about one million less households in the United States than there should be based on current demographics

New households are not being created more slowly in the US.

What’s a household you ask?  A household is simply persons who occupy a housing unit, such as a single family dwelling, an apartment or mobile home.  Households are normally created when children grow up and leave the nest.  Children go out on their own and get their own place.  But in today’s economy people are strapped for cash, so they are doubling up with friends and family.  People are living with roommates, other families or even going back home to live with mom and dad because cash is so tight.

So what?  Well as  landlords and real estate investors, household creation affects us greatly.  If people are doubling up with other people and not going out on their own, that translates into less renters or buyers for our properties.

I know many have said that rents should be increasing because fewer people can afford to buy a home these days and should thus be becoming renters.  However, while the pool of applicants has been steady in my market, I have generally not been able to increase rents due to increased demand (and I

have tried!).  I suspect this drop in household creation over the past few years has something to do with that.

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