Many U.S. metros are in the hottest rental market in over 5 years according to M/PF YieldStar, a Texas based research firm. According to Greg Willit, vice president of research at M/PF "2006 should be the big price correction" for rents. "Everything is really underpriced in many markets around the U.S."
- National apartment occupancy rose 1.6% to 95.2% in 4Q05, the highest point since fall of 2001.
- The average rent climbed to $940 in 4Q05.
There are several factors at play that will likely keep the heat on high:
Increasing demand - Rising building cost, coupled with strong new job growth, is creating a growing pool of renters.
- San Francisco had 96.4% occupancy with an average rent of $1,573.
- Los Angeles was the fifth-tighest rental market with an average occupancy rate of 97.1% and an average rent of $1,421. In LA it can take up to 8 years to get a project built.
- New York City topped with 97.1% occupancy with an average rent of $2,400, according to real estate data firm, Reis Client Services.
Other metro areas expected to see increases in occupancy and rent include Las Vegas, NV; Phoenix, AZ; and Austin, TX, where demand has outpaced construction and job creation is growing at record pace.
In some of these markets rising home prices have so widened the gap between renting and owning that many believe there will be a landlord's market for many months.
Shrinking new supply - In many communities the cumbersome building processes and skyrocketing construction costs have placed the price of new homes beyond the mainstream buying market.
Shrinking existing supply - Condo conversions are eating up inventories. In high rental demand markets the existing supply of rental units is rapidly shrinking. So strong is the demand that it is increasingly feasible for developers to convert existing apartment units, considering the high cost of buildable land, excessive planning and permitting time; and high cost of new construction.
Local forces - Natural disasters like Katrina produce strong demand for rental housing.
- Though short-termed the aftermath of Katrina created a sharp demand for rentals (In Houston, TX occupancy jumped to 94% and rents by 3% to an average of $692). The markets of Nashville, Dallas, Birmingham, and Atlanta, all benefited from the Katrina aftermath as evacuees relocated to new communities.
All of these factors are forging a strong investors' rental market into the near future.
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