Real Estate

Favorable multifamily climate predicted to last through 2014

Rent gains accelerated to 2.8% year-over-year in June, the largest annual increase since January, according to Trulia’s latest rent monitor. 

However, what’s interesting is that, despite the gains in rent cost, rents are outpacing home prices in only 3 out of the 25 largest rental markets: Houston, Philadelphia and New York. 

So with home asking prices up between 1.2% and 1.5% per month, according to Trulia (TRLA), will more potential buyers be forced to rent instead of buy? 

According to MPF Research, a division of RealPage, Inc., annual rent growth is accelerating yet again after cooling a bit throughout 2012 and early 2013. Typical monthly rent across the nation’s 100 largest metros now is at $1,110. 

But even though rent costs are up, demand remains high. In fact, according to MPF Research Vice President Greg Willett, the number of new apartment renters entering the market exceeds those exiting to make home purchases. 

“The big-picture story is that the apartment market has been essentially full since the middle of 2011, and that it’s continuing to remain full even as we add a significant number of new rental properties and cycle out some previous apartment residents to home purchase. We’re adding enough new households for all types of housing to experience momentum at the same time,” said Willett. 

John Burns, CEO of John Burns Real Estate Consulting, believes as long as total job growth exceeds total construction, rent prices will keep rising. “There aren’t enough people with downpayments to flood out of rentals into homes and cause a rental downturn,” he said. 

According to Burns, there are a number of markets where supply is climbing quickly and will be susceptible to a big decline if the U.S. faces another recession of the job growth or if the construction ratio falls below 1. Those markets are Dallas, Houston, Austin, San Antonio, Seattle, San Jose, Washington DC, Tampa, Raleigh and Charlotte.

David Mintz, vice president of government affairs at Texas Apartment Association, said that the feedback from his members indicates that higher home prices, rising interest rates and tighter credit standards are all huge factors behind this boost in demand and rent prices. 

Mintz said that the other factor, at least within the Texas market, is the increase of people moving into the state on a regular basis. “It’s the convenient easy way to find housing,” he said.

Theron Patrick, analyst at ALN Apartment Data, told HousingWire that new construction is not outpacing the absorption, pushing up rental demand. 

“I attribute 3 overall factors that have contributed to the current favorable climate for multifamily,” Patrick wrote in ALN’s latest newsletter. “Firstly, the economy has improved and added jobs to most of the Metro areas. Secondly, even with the enlargement of the workforce and pickup in hiring we have not seen a significant increase in wages and income in the last 4 years. Finally, delays in construction of new product and single-family homes have meant less competition from added units to the market and have led to a natural throttling.” 

According to Patrick, this favorable climate for multifamily will likely last for the next several quarters … or at least until something gives. 

“Not until the end of 2014 will we really start to see these things change,” said Patrick.

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