Bright Spot in the Housing Crash: Cheaper Rents

[one...two...tree 2,762]

By Barbara Kiviat, Time

There's good news in the housing market—for renters. What you pay is on the way down. The average rent in the U.S. fell by 0.4% in the last three months of 2008, according to a survey of large apartment buildings in 79 metro markets by the real estate analytics firm Reis. Even though landlords often find it tougher to raise rents in winter months, the fourth quarter's decline from the three months prior is significant for being the first quarterly drop since the beginning of 2003. (See who's to blame for the current financial crisis.)

At first pass, that might not make a whole lot of sense. If homeownership is on the decline, shouldn't apartment buildings be swamped with interest? As it turns out, those two things don't neatly seesaw. The demand for apartment rentals is largely linked to employment. When people—especially young adults who are prone to rent—don't have jobs, they're more likely to stay with family or become a roommate instead of renting a place of their own. Plus, in the wake of escalating foreclosures, buildings full of condos that can't be sold, and investor properties sitting unflipped, there are plenty of units from unconventional sources up for rent. (See pictures of modernist houses for rent.)

What that means to you: "If you're looking for an apartment or want to renegotiate your lease, you should keep in mind that you have bargaining power," says Hans Nordby, U.S. strategist at Property & Portfolio Research (PPR), a real estate intelligence outfit.

You can expect that edge to continue. In 2009, the average apartment rent will drop by 2.1%, according to PPR projections based on apartment buildings with five or more units in 54 markets. The nationwide vacancy rate is already at 6.8%, where it peaked during the last recession, and is likely to grow by another percentage point this year, according to CBRE/Torto Wheaton Research, a property analytics firm that surveys professionally managed buildings with five or more apartments. (See pictures of the recession of 1958.)

Just keep in mind that real estate is still, to a great extent, a local phenomenon, and renters in different markets will benefit more than others depending on regional economics. Take, for example, Manhattan, the main borough of New York City, whose fate is largely aligned with finance firms. In the wake of mass layoffs, the local apartment brokerage CitiHabitats has already seen a fall-off, with the average rent for a one-bedroom apartment dropping 2.5% in the last three months of 2008, compared to a year before. PPR's one-year forecast show rents dropping in 39 of its 54 markets, sometimes by large amounts—down 2.7% in Memphis, 3.7% in Charlotte, 5.2% in Atlanta and 5.9% in Los Angeles. But other cities, like Seattle, Baltimore and St. Louis, are due for higher rents. (For a list of the top five movers in each direction, click here.)

Where rents are on the way down, renters might have more room to play hardball, even more than they did in the last downturn. In past cycles, landlords have often kept asking-rents high, even if they were willing to negotiate with renters one on one—with, say, a free month's rent. This time, though, both asking and actual rents are falling, according to Reis data. "It looks like landlords are much more willing to lower prices quickly," says Victor Calanog, the firm's director of research. "It's a tenants' market." (See the best business deals of 2008.)

Like all good things, though, the renter's advantage will come to an end. While PPR projects apartments rents dropping 2.1% this year, next year's decrease is expected to be just 0.5%. That could be the beginning of a trend back toward higher rents, especially if the economy—and jobs—rebound. Plus, in just another couple of years, the children of the Baby Boomers, an abnormally large cohort of young adults, will be graduating from college, looking for a place to live, increasing demand for rentals. Considering how many construction projects are being put on hold these days, the supply of new apartments will likely not keep up, driving rents up.

So if you're a renter, you might also want to think about one other option: homeownership. "Prices have come down in some areas so much, renters can even start considering buying," says Gleb Nechayev, senior economist at Torto Wheaton. He looked across markets at the average monthly cost of buying a condominium, assuming a 20% down payment and annual fees of 1.5%. Even after adding in interest on the loan, buying an apartment in certain markets—including Las Vegas, San Diego, Orlando, Sacramento and Fort Lauderdale—came out to be cheaper than the average rent. In West Palm Beach, it cost 20% less.

In other words, renting might not be the only deal to be had.

http://www.time.com/time/business/article/...1873081,00.html

[Heracles 417]

I don't know where that is because rents are going strong here. If not worse considering that so many people who have lost their homes now rent.

[pedroh 21]

where I live I dont think they'll increase the rent, a lot of people lost their jobs (mainly construction) so I know my apt complex is going to evict at least 30 families.. poor guys

[tallcoolone 102]

Harder to buy a house will increase the renter population.

Rent will go up.

Great time to buy rental property and stockpile your rental portfolio.

Buy properties now while they are cheap, and rent them out for a few years letting the renter pay your mortage note.

Then in a few years when the housing markets levels off, sell them and line your pockets with lots of cash

[Heracles 417]

The foreclosures in our area have come to a halt. Actually they are building homes nearby.

Edited January 22, 2009 by Aficionado

[mawilson 2,133]

I'm sure the government will come up with new creative ways to punish responsible, cash-saving

renters by bailing out those who overextended themselves to artificially prop up house prices

above what they should be.

If you've been responsible and not bought a house you couldn't afford (perhaps waiting until you

could afford it or waiting for the house prices to return to a rational level), the government will

f#ck you twice - by keeping house prices artificially high *and* using your tax money to do it.

Edited January 22, 2009 by mawilson

[alienlovechild 75]

If you've been responsible and not bought a house you couldn't afford (perhaps waiting until you

could afford it or waiting for the house prices to return to a rational level), the government will

f#ck you twice - by keeping house prices artificially high *and* using your tax money to do it.

When prices of homes soared year after year, I don't remember any talk about price controls but people who got suckered want Uncle Sam to insure they get some kind of profitable return. I'd love to buy a house in the next six months but I don't want to pay beyond the value of the house for somebody's inflated home value.

[Mononoke28 137]

We live in a pretty exclusive complex where rents were pretty outrageous but ever since the economy went kaput, they brought them down by quite a lot.

Diana

[doodlebugg 10]

Rents seem pretty high still over here, though I hadn't seriously looked at rents for many many years. I might be foreclosed on soon so now each week I review what's for rent in my town for a 3 bedroom and it's on average around $2,200/month. That's a lot less than my mortgage so it'll still be ok for me but geez louise it's a rental I would have thought things would have been cheaper.

And for those of you who might think that those of us who run the risk of foreclosure were just plain greedy think again. For me I guess you could argue that I was stupid to depend on my child support as a means to pay the mortgage but that's what I did. Now I haven't received any support in over 5 months and as a result may lose my house. It's currently under modification negotiations and that seems like a neverending process right now. Been since November!!!

Anyway I will NEVER buy another house again. Too much hassle for a lot of reasons.

[Hilarious Clinton 452]

No housing market crash here. Rent hasn't changed.

[Chica Yeyé 41]

Not in Seattle, they have not.

[MrsCat 6]

Rent has severely decreased here in the past year. Like $200-300/month lower. We keep saying that we're going to move, but we're just to damn lazy to pack. Maybe next month.

[Hilarious Clinton 452]

Not in Seattle, they have not.

You live in Seattle? I don't.

[w¡n9Nµ7 §£@¥€r 123]

I have no idea what's happening with rents.

But home values are going down down down whoooooooo!

[Jasman0717 9]

The foreclosures in our area have come to a halt. Actually they are building homes nearby.

There are still a lot occurring here and lots of new condos sitting empty or being rented out.