E-Renter News

Remember when landlords were offering a month’s free rent, gym memberships, free Internet and other amenities to attract the best tenants? When everyone was moving up to homeownership, rental property owners found themselves having trouble filling vacancies.

That is no longer the case in most markets across the U.S. The collapse of the housing bubble has turned the tide in favor of landlords, who are enjoying lower vacancy rates and higher rents—without the concessions they were forced to offer just a couple of years ago.

Data tracking firm MPR Research reported that in the fourth quarter of 2011 about 25% of all apartments nationwide were offering some type of concession, compared to 53% in the first quarter of 2010.

The nation’s lowest vacancy rate is in Pittsburgh, at 2.2%, where one master’s degree student indicated that apartments were much harder to find, and landlords were being stricter about tenant background checks. In Portland, Oregon the vacancy rate at the end of 2011 was 3.1%; one property manager said, “Nobody is giving concessions. That’s history.”

Renters are finding it more difficult to find affordable housing, outside less-than-desirable neighborhoods. As a result, more are looking for roommates to share the cost of increasing rents. Meanwhile, multifamily housing managers are using sophisticated software programs to determine how much rents can be increased, according to what the local market is doing.

Construction of apartment buildings is expected to soar this year—a whopping 89% over the very low numbers recorded in 2011, according to MPF Research. Still, it’s a delicate balance. Right now, the demand for rental housing is there. But as always, no one can predict how long it will last—or if multifamily housing will be overbuilt in response, leading to over supply and lower rents in the long run.

Renting has become preferable to homeownership in the U.S. for the first time in decades. This trend is expected to continue for the next four or five years, according to economists and investment strategists quoted in Bloomberg.

There are several factors contributing to this change:

Refinancing Issues
Mortgages are increasingly unattractive for banks, which make less interest income from refinancing deals. Four banks control over 60% of the mortgage market, and mortgage service firms are reducing staff levels. Refinancing is also unlikely for 8 million underwater homeowners.

In addition, second mortgages, which were a staple of the housing bubble, have made it difficult for many borrowers to qualify for refinancing. Second mortgages also have to be renegotiated, and requirements have been tightened. Once, home equity loans were as easy to get as a box of popcorn at the movies, but now they’re keeping many homeowners stuck with higher rates. With refinancing becoming more difficult, the chance to do so has diminished for many homeowners

Homeownership Rates Falling
The U.S. rate of homeownership fell to 66% in the fourth quarter of 2011. Adding in all those with delinquent mortgages or whose homes are in foreclosure (12.5% of residential mortgages) would drop that number even further, to 60.9%. Renters are expected to enter the market at a rate of 780,000 per year by the end of 2016. That’s a total of 3.9 million new renters.

Delinquency Rates Rising
More than 700,000 single family loans were seriously delinquent in December 2011. That’s up nearly 19% from December of 2010. The “seriously delinquent” rate was 9.59% in December, compared to 9.34% in November. Low down payments, tighter lending standards and high unemployment are contributing to the rising numbers. Many homeowners don’t really “own” their homes, if their value is less than what they owe, or they have second mortgages that increased their debt to value ratio. For those who paid little down, have high mortgage payments and a house whose value has plummeted, there is little incentive to pay the mortgage on time.

If these trends and predictions hold up, landlords can expect to stay busy with prospective tenants searching for rental housing in the next several years.

Smart landlords keep an eye on housing markets. More apartment building means more rental housing is on the way—which could increase the supply and lower rents. What’s happening in your area? Do you see evidence of new multi-family housing construction?

Like many municipalities, Connecticut’s cities and towns are experiencing difficulty in balancing their budgets. But one mandate intended to provide some relief is drawing quite a response from landlords and the Connecticut Association of Relators. Governor Dannel Malloy’s idea is to relieve the towns and cities that pay to store the possessions of tenants evicted by court order, by passing those costs on to landlords.

In Bridgeport, Conn., the mayor indicated the city could save $100,000 in storage fees each year. The executive director of the Connecticut Conference of Municipalities said the mandate places municipalities in the middle of disputes between landlords and tenants. The governor’s secretary of the Office of Policy and Management explained the point of the legislation is to “provide some solid monetary relief” for Connecticut’s towns and cities by shifting the “cost from local governments onto landlords.”

The bill allows cities and towns to seek reimbursement from landlords for up to 15 days of storage fees, plus an additional 15 days’ worth if the tenant asks for an extension.

When a landlord is forced to evict a tenant, usually because of a broken lease, he or she will have already incurred expenses in lost rent or damages, along with attorney’s fees and court costs. Requiring a landlord to pay for storing an evicted tenant’s belongings seems to add insult to injury.

In Columbus, Ohio, city officials are thinking about changing a procedure where the city pays displaced tenants $650 to relocate after their rental housing is deemed unsafe. Last year, over $20,000 was paid to people forced to move after safety hazards were discovered in their rented homes and apartments.

Now, the city is thinking about putting forth an ordinance that would require the landlords to pay the expense of moving tenants from their substandard housing. There is no current legal precedent to force landlords to pay anything.

In one recent case, a family was forced to move from a rental house after code-enforcement officers ordered it vacated. The house had no heat. In addition, leaking gas lines inside the house compelled the natural gas company to shut off the gas. The landlord who owns the house also owns one where three people died in a Christmas Eve fire. It, too had no heat, and the tenants used a space heater to stay warm. The home had been ordered vacated in 2009, but the landlord leased it anyway. Now, the city is re-inspecting vacated homes every 30 days to ensure they are empty.

The displaced family indicated that finding a new home to rent was difficult, because landlords were not willing to allow the city to inspect their properties—a requirement of using city funds to relocate.

Landlords, What Do You Think?
Should landlords who allow their rental properties to fall into such disrepair that they are unsafe for habitation be required to pay tenants’ relocation expenses?

January’s housing starts were the highest in more than three years, according to the Commerce Department. Builders broke ground on a seasonally adjusted annual rate of 699,000 homes in January, up 1.5% from December.

The figure is the highest since October of 2008, and was driven by a 14.4% boost in apartment building. The numbers continue to support the trend of more Americans renting, rather than buying homes. Demand for rental housing is expected to continue through the year.

Economists had predicted housing starts would increase to 677,000, so the actual number is a good indicator that builders are starting to contribute to economic growth.

Single-family home starts dropped 1% from December’s revised number of 513,000. That revised figure ended up 12% from November, but the drop was the first in four months. Building permits were also up .7% in January over December.

Smart landlords keep an eye on housing markets. More apartment building means more rental housing is on the way—which could increase the supply and lower rents. What’s happening in your area? Do you see evidence of new multi-family housing construction?

The nation’s homebuilders are feeling more confident, as indicated by the highest housing market index in over four years, the National Association of Home Builders said today. The index increased from 25 to 29, for the fifth consecutive increase and the highest level since May 2007.

Some economists expected the index to rise only to 26, but the actual outcome is close to the May 2007 reading of 30. While the reading is not a precise prediction or indicator of the housing market, it is a much-watched marker of the direction that new housing starts could be taking. The big jump is a positive indicator in an industry that desperately needs some good news.

All three of the Index’s components—potential buyers’ traffic assessment, current sales conditions, and expectations for the next six months—increased, although any reading below 50 still indicates that builders see conditions as poor, rather than good. Readings were in the high 60s and 70s during the housing boom.

Still, 29 is a far cry from the very low indicator of eight, reported in early 2009. Builders still face competition from foreclosures and low-priced existing homes that are contributing to high inventories. And mortgages are still tough to get. But as long as builder sentiment is growing stronger, it could be a sign that housing market recovery is coming.

On the one hand, the president of the St. Louis Federal Reserve Bank said today that the U.S. housing market has already hit bottom. James Bullard also said he expects unemployment to fall below 8% this year. Bullard conceded he was more bullish on the market than other forecasters.

Another pundit states that, because cars are wearing out and living with mom and dad and several cousins is wearing thin on countless nerves, demand for autos and rental housing will soon begin to rise.

On the other hand, some market analysts say that it’s still too early to say housing has reached the bottom. Prices are still falling, and 19 of 20 cities reported by the Case-Shiller Home Price Index saw home prices decline in November over October of 2011.

One problem is that GDP is growing at the slowest rate in any non-recessionary year since 1947, according to Credit Suisse. Another is that millions of Americans are still underwater on their mortgages. And 13 million are still unemployed.

The good news is that the oversupply of housing is starting to dry up. In December, it reached a level we haven’t seen in nearly seven years.

So whether we’ve already reached the bottom, or we are getting close to hitting the bottom, one thing is for certain: the housing market should definitely be in recovery... sometime this year. That much, most everyone agrees on.

U.S. Census Bureau figures show that American homeownership continues to decline. The rate fell in the fourth quarter of 2011, from 66.3% to 66%. That’s where it was back in 1998. However, the number is slightly above the lowest figure in the post-real estate bubble, which was 65.9%, in the second quarter of 2011.

The number of houses occupied by renters rose by 749,000 in the fourth quarter over the same period in 2011, according to the Commerce Department. Meanwhile, owner-occupied homes fell by 91,000 in the fourth quarter.

Demand for rental housing continues to grow, helping to boost rents and landlords’ returns. New households are being formed at a higher rate, but they are increasingly choosing to rent, rather than purchase a home. Lending criteria are still tight, and unemployment remains high—although jobs have been steadily increasing in recent months.

Some economists expect home prices to continue to fall until foreclosures slow, and available homes on the market start to decline. For now, would-be homeowners are not willing and able to take the plunge.

The vacancy rate for rental homes was 9.4% in the fourth quarter, which was the same as last year.