Amid housing-market slump, prospects for renters perk up
Renters may be the big winners in the housing slump, especially in places like Southern California, Las Vegas and Florida, which have thousands of vacant for-sale and foreclosed homes and condominiums on the market.
Apartment vacancies are edging up in many areas of the country as frustrated sellers instead try to rent out their homes and condos. And that is making it harder for landlords to raise rents.
In the toughest markets, apartment owners are even offering lease incentives to snag renters.
This “shadow market” of investor-owned homes and condos accounts for almost half of the rental stock and attracts displaced homeowners more often than your typical apartment renter.
“What’s different now is the degree of excess homes and condos being put on the rental market,” said Hessam Nadji, managing director at Encino-based Marcus & Millichap Real Estate Investment Services, which analyzed the data. “The sheer volume is creating more competition for traditional rental markets.”
Areas that experienced explosive condo development and conversions of apartments into condos for sale are finding those units unloaded onto the rental market because developers can’t sell them.
In San Diego, homes being placed on the rental market are hurting luxury apartment communities, said Rick Snyder, president of the California Apartment Assn.
“People realize they’re getting substantially more value than what they’re spending on that rental,” said Snyder, who is also president of apartment manager R.A. Snyder Properties Inc. in San Diego.
But there could be some unseen risks behind these bargain shadow rentals. Renters who got homes or condos on the cheap may find a sheriff knocking at the door with an eviction notice if their landlord fails to pay the mortgage.
“Some investors will take any dollar amount to have any cash flow,” Nadji said, noting that the rent often covers only a portion of the mortgage payment. “We’re seeing a lot of tenants being displaced when landlords get foreclosed upon.”
Meanwhile, renters in some of the costliest cities aren’t getting any relief, to their dismay.
Rents in pricey San Francisco surged 11.5% last year, while New York rents shot up 9%, and rents in San Jose climbed 8.7%, Marcus & Millichap reported.
But if job losses continue to mount, rents even in the most robust markets could shrink while vacancies rise, Nadji said.
“Employment has the closest correlation to rental absorption,” he said.
“Demand for studios and one-bedrooms is weak, while we’re starting to see more demand for multi-bedroom, multi-bathroom units because people are doubling or tripling up to save money.”