Posts Tagged ‘2012 rental market’
In previous years, it was embarrassing to say you rent. Today, in most cases, it is embarrassing to say you own. According to the US Census Bureau, the U.S. homeownership rate has fallen about 1.5% over the past year (from 66.9% to 65.9%). For every 1% drop in the homeownership rate, it represents approximately 1 million new renters entering the rental market.
In some cases, homeownership rates have fallen below some European countries. Italy for example, has an 84% homeownership rate. Along with Spain with a 78% homeownership rate.
High unemployment rates, difficulty in getting financing, changing demographics and increased foreclosure rates are adding to the deceleration of homeownership. In 2011, there was a 4% increase in the amount of renting households compared to 2010.
In the United States, homeownership is the least in states like California (56%), New York (54%) and Washington at (64%). States with the highest homeownership rates are Michigan (75%), Mississippi (75%), South Carolina (75%) and West Virginia at (79%).
Rental vacancy rates dropped to 5.6 percent in the third quarter of 2011, down from their record high of 8 percent in 2009, according to Reis Inc. This increase in rental demand is putting upward pressure on rental prices throughout the United States. As more foreclosures and new apartment buildings enter the market, the rental rates should stabilize and reach equilibrium.
Renting is the new buying and this trend doesn’t seem to be slowing down anytime soon.
RentBits, Rental Property Search
With 2012 nearly upon us, many of us will be spending this week reviewing the events of 2011 and setting resolutions, goals or visions for what we’d like to accomplish next year.
It will come as no surprise that the most common New Year’s resolutions fall into the categories of getting organized and getting fit — physically and financially.
Financial fitness includes getting your real estate business in order. But you can’t set up your real estate plans for the year in a vacuum. They must be done in context of what’s going on in the market. Here are four predictions about what that market context will look like in the coming year:
1. Even more foreclosures
While I’d like to claim crystal-ball credit for this one, it doesn’t take heightened powers of prediction to foresee an uptick in the rate of home repossessions in 2012. Last fall’s robo-signing debacle and the ongoing legal fallout from it created a massive backlog in the foreclosure pipeline, meaning that banks are taking many months, even years, to actually foreclose on mortgages in default.
Earlier this year, the New York Times reported that the additional hurdles New York state courts are requiring banks to leap in the wake of the robo-signing revelations, like additional settlement meetings with the homeowner to see if a modification can be brokered, have created a backlog of foreclosures that it would take 62 years to clear, at the current rate of foreclosure.
It’s pretty clear that in 2012 and beyond, the banks will work through those backlogs. The inevitable result will be an increase in foreclosures.
2. REOs and short sales will become the new normal
If you even know anyone who has house-hunted in the past couple of years, you’ve likely heard tales of the high-drama high jinks — super-long escrows, first-time buyers being bested by investors’ cash offers, banks resistant to negotiating for repairs — that take place in the course of a distressed property sale.
In the coming year, distressed home sales will continue to represent an increasing share of homes on the market. So, buyers will shift from considering whether to buy a short sale to understanding that they must be educated and prepared to do a deal with a seller, a bank (to buy an REO) or a hybrid of the two (to buy a short sale) to access the full selection of homes on the market.
This, in turn, will empower buyers to make smart decisions about what to offer and what to expect on any listing they like, as well as to set smart priorities and make realistic comparisons between listings based on their own personal priorities around timing, certainty and seller flexibility.
3. So-called ‘smart cities’ will do well
This year, a number of housing markets saw double- or even triple-dips in home values. In others, pricing stayed relatively flat. However, in areas where technology powers the economy, home values prospered along with the industry. Silicon Valley real estate, for instance, saw fierce competition among buyers as the young employees of companies that went public like used their newly stocked bank accounts to buy their first homes.
I recently talked with Jed Kolko, chief economist for real estate search site Trulia, and his 2012 forecast was that so-called “smart cities” will continue to have hot real estate markets next year. But Kolko defined smart cities much more broadly than the California tech hubs. Other tech centers like Austin, Texas, and the Massachusetts suburbs of Cambridge, Newton and Framingham all made Kolko’s list, as did Rochester, N.Y. (a town known for its highly educated, highly skilled work force).
4. Consumers will get ‘hopeless’
I mean hopeless in the best of all possible ways. For years, buyers and sellers have been waiting for that singular event to occur that would cause a quick market recovery. But 2012 will mark the fifth or sixth year of the real estate recession, depending on who you talk to. I predict that those consumers who have not already done so will drop unrealistic hopes for a fast return to the heady real estate fortunes of the subprime era. Instead, people will make their real estate plans based on:
- today’s low home prices, rather than the fantasy of what could happen if the market miraculously came back;
- assumptions of very low, or no, appreciation in home values for years to come; and
- very conservative estimates of their own finances and how they will grow.
As a result, buyers won’t break their necks to hurry and buy before prices uptick; rather, they’ll save and plan to buy when it makes the most sense for their finances. Homeowners will do the same; they will either refi, remodel and be content where they are for the long haul, or decide their homes no longer fit their lifestyles and their finances, divest of them and move on. But the good news is, people will make these decisions based on what is or is not sustainable for their lives and their finances, and not based on inflated hopes about what the market will or will not do.
Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
The stars are aligned to make 2012 an extraordinary year for rental income. The decline in homeownership is translating into rising rents and the multifamily apartment sector, though booming today, was late catching the wave. If it weren’t for the new investor-driven single family rentals in many markets, rents would be zooming even higher than they already are.
The New Normal in Homeownership Creates Demand
Changing attitudes towards homeownership have been pushing up rental demand since 2004, before the housing bust. The number of homeowner households declined by 805,000 from 2006 to 2010 and the number of renters rose steadily for six consecutive years, increasing 3.9 million during that period, according to Census data. The net increase of in 2012 alone was 1.4 million new rental households, a 1.5 percent decline in the national homeownership rate and a 4 percent rise in the number of tenants.
Much of the rental demand is from younger households that are postponing or even canceling homeownership in favor of renting. The decline in the homeownership rate has been sharpest for those household heads under 30 years of age. Owner rates have fallen by 4.4 percent (to 21.9 percent) for those under 25 years of age and by 7.0 percent (to 34.7 percent) for those aged 25 to 29 years, according to Freddie Mac.
Multifamily Struggles to Keep Up
Multifamily rental housing can’t keep up with the demand. Census Bureau reported that third quarter vacancies for rental housing were only 9.2 percent, 1.4 points lower than a year ago and .5 percent below the first quarter. We haven’t seen a 9.2 percent vacancy rate since 2003. A Reis Inc. survey of professionally managed buildings in metropolitan markets found vacancy rates stood at 5.9 percent during the third quarter, the lowest since 2007 for that class of apartment.
Apartment developers and investors are a conservative lot and they took a wait-and-see attitude towards the rapid and dramatic changes in the rental market. Now, however, things are popping. In November starts of residential developments with two or more units saw a 25.3 percent increase from the previous month , the construction of apartments, town houses and other multifamily developments, evidence that rising demand for rental housing has encouraged developers to begin building again. Newly issued building permits, a gauge of future construction, climbed 5.7 percent in November from a month earlier to an annual rate of 681,000, a 24.3 percent increase from November 2010 and the highest rate since March 2010. The overwhelming majority are for multifamily units.
Even so, developers can’t keep up. Two-thirds of developers surveyed in the third quarter by the National Multifamily Housing Council said construction activity is underway, and 20 percent are breaking ground on new projects at a rapid clip. The other 47 percent reported an increase in pre-construction activities-acquiring land, lining up financing, getting building permits-but not much actual construction yet. Yet even with this increased activity, more than half (54 percent) think new development remains considerably below demand.
Single Family Fills the Void
In the dorky world of real estate economics, single family rentals are the newest kid on the block. Just recently have databases serving the residential investor tracked single family apart from multifamily, but it’s very clear that in many markets today single family rentals are taking up the slack. From 2005 to 2010, single-family rentals grew at 21 percent versus just a 4 percent increase in total housing units, according to Zelman Associates.
Single family demand is closely linked to foreclosure activity in the hardest hit markets as families displaced by foreclosure prefer to rent a single family home rather than crowd into an apartment. In hot foreclosure markets attractive to investors, such as Nevada, Arizona and Florida, single-family rental units have increased 48 percent, while apartment units were virtually unchanged. According to the Census Bureau, since 2004 there are 3.60 million homes built for sale that are being utilized as rental today.
2012 Rental Outlook
The national median rental rate rose to $1,004 in the third quarter, up from $981 in the third quarter of 2010, according to Reis Inc. Although overall rent growth will vary greatly by metro, on a national median rent increase will come in somewhere between 2.5 to 4.0 percent for 2011, depending on whose data you use.
However, 2012 could be even better. Fannie Mae is currently projecting that average asking rents on a national basis could experience an annualized increase of between 2.0 percent and 3.0 percent. Others are less conservative. The National Association of Realtors forecasts multifamily rents to rise 3.5 percent next year. Axiometrics’ research forecasts a national rental growth rate of 5.5 percent. Christina Aragon, Director of Marketing and Customer Insights at Rent.com, predicts the vacancy rate will hover at a only 5 percent and rents will explode. Now, Aragon expects rents to spike 7 percent or so in each of the next two years.
As we all know, there is no such thing as a “national” real estate market. Numbers like those cited above are merely estimates of national medians across hundreds of local markets. Relying on a national real estate forecast to predict prices or rents in your market is like using a national weather forecast to tell you whether it will rain in your backyard this afternoon. The big picture may or may not be relevant to your market situation.
Local Market Rental Outlooks
However, the good news is that many of the hottest markets for investors, rents are going to the most. Increases will likely top the 10 percent mark annually for the next couple of years, according to John Burns Real Estate Consulting quoted in CNNMoney. In San Diego, rents will rise more than 31 percent by 2015 and in Boston, they may jump between 25 percent and 30 percent. Seattle rents will climb 4.5 percent next year and 6 percent in 2013.
A number of metro areas have actually had double-digit effective rent growth. High-density, west coast metro areas such as San Francisco with 14.8 percent and San Jose with 11.7 percent year-over-year effective rent growth rates are not totally unexpected. Charlotte with 7.2 percent rent growth; Miami with 5.6 percent; and even Denver with 6.6 percent effective rent increases, are less predictable examples. Axiometrics expects San Jose, San Francisco, and Austin to remain among the top 10 markets in effective rent growth in 2012 and Las Vegas is expected to become one of the most improved markets in 2012.
Local economies, especially jobs, will drive local demand. Over the next three years, Local Market Monitor expects rents to rise 18 percent in Houston, 15 percent in Grand Rapids, 25 percent in Rochester, 16 percent in Dallas and 19 percent in Tulsa.
Landlords increasing rents by 2 to 4 percent this year may find tenants won’t be surprised. Consumers expect home rental prices to increase by 3.2 percent over the next year, according to a recent Fannie Mae survey. Some 41 percent said rents will increase next year, 48 percent expect rents to stay the same and only 6 percent expect them to fall. The November numbers showed a slight retreat from October, when 43 expected rents to rise and 47 expected them to stay the same.
“Most Americans expect no improvement in their personal financial situation in the next 12 months and will likely remain wary about undertaking the significant financial obligation associated with homeownership until their view of their income, expenses, and job security heads in a more positive direction,” said Doug Duncan, vice president and chief economist of Fannie Mae.
By Steve Cook, Bigger Pockets Blog, December 28th, 2011
Site Search
Sign Up
Recent Comments