Rentals on the Rise and Condos in Decline
The condo and rental apartment markets are heading in opposite directions, according to a panel of experts at the NAHB Fall Construction Forecast Conference.
“The rental market is strengthening, while the condo market is weakening,” said NAHB Chief Economist David Seiders.
“The healthy rental demand in 2005 to 2006 has been gangbusters for leasing,” said RonWitten, president of Witten Advisors. “About 400,000 rental units have been absorbed. This is the best 12-month period for leasing we’ve had. Demand is back and supply hasn’t slowed.”
As for condo sales, Witten added that they have “plummeted over the last two to three quarters. Inventories are rising and prices are softening.”
With home prices moderating and even declining in some parts of the country, Seiders said that condo markets have been vulnerable to an influx of “hidden supply” currently held off the market by investors/speculators who bought during the boom of 2004-2005, when ongoing price appreciation seemed like a sure thing.
Existing condo and co-op sales fell in September and remain on a downward trend, Seiders noted, and the inventory of existing condos has swelled to a 10-months’ supply.
With the condo market in the doldrums, apartment occupancy and rental rates are trending upward, fueled by solid job growth and lower vacancy rates.
“Rents are moving up after falling in 2001 to 2004, when everyone rushed into homeownership,” said Seiders.
Further upward pressure on rents came during this period when many apartments were converted to condos, reducing the supply of rental units.
Illustrating the diverging paths of the rental and condo markets, Seiders said overall multifamily starts should total 339,000 units this year, with rentals accounting for 52% of the total and condos 48%. While total multifamily starts are expected to be in a similar range in 2008 (331,000 units), Seiders said the rental share could rise above 70% of the multifamily market, while condos recede to their 2003 to 2004 level.
Cities experiencing the largest rent increases from the second quarter of 2005 to the second quarter of 2006 were concentrated mainly in Florida, according to Witten. They include: Fort Lauderdale (9.5%), West Palm Beach (9.1%), Orlando (8.7%), Phoenix (8.2%), San Francisco (8.2%), Miami (7.5%), Los Angeles (7.4%) and Tampa (7.3%).
“The Florida rent spike is the result of condo conversions taking out supply. This is not a sustainable pattern,” said Witten.
Metro areas that posted the smallest rent increases during this period were situated primarily in the Midwest. They include: Cincinnati (0.4%), Detroit (0.8%), St. Louis (1%), San Antonio (1.2%) and Kansas City (1.2%).
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Attend the Multifamily Pillars of the Industry Conference, the premier industry event for the multifamily industry, on April 11-13 at the Westin Diplomat Resort and Spa in Hollywood, Fla.
Visit www.nahb.org/pillars for more information.