Thursday, June 15, 2006

As the housing market cools, rental prices rise

As the housing market cools down, the rental market will heat up. Rising rental prices are obviously great for landlords. I’ve already noticed this happening in the area surrounding my rental units, where rents have increased 10-15% in the past six months. This change is also happening in Philadelphia, where apartment buildings are full and are increasing prices of the remaining units.

The WSJ has a good article on the topic here.

Generally, rents in East and West Coast cities are expected to rise the fastest. Archstone-Smith, which owns apartment buildings in 41 cities, says it is increasing rents 8% to 10% in New York City and Southern California. And in South Florida, vacancy rates are so low that some landlords are raising rents as much as 28%, according to McCabe Research & Consulting. In Chicago, just five of 34 large apartment buildings offered concessions to renters in the first quarter, down from 19 a year earlier, according to Appraisal Research Counselors, a real-estate consulting firm.

It's partly a supply-and-demand issue. Years of soaring house prices (and recent increases in mortgage rates) have simply priced many people out of the home-buying market. Indeed, the portion of U.S. households owning their own home slipped to 68.5% in the first quarter from 69.1% a year earlier, according to the Census Bureau.

For long-term landlords/investors, this is a great situation. Day-to-day fluctuations in the current market value aren't exceptionally important, because I’m not going to be selling them anytime soon. Even if we're heading into a downturn or cooling off period, housing is cyclical and will come back and appreciate over longer periods.

Monthly cashflow is what is important today, and higher rents will directly benefit this.

1 comment:

Anonymous said...

Hi Rick,

I agree. As the market is finally starting to cool down and demand for rentals heat up, rent prices have to natually increase. Not to mention the fact that many real estate investors today need the extra rental revenue to keep their properties floating (cash flow positive) because of the inflated prices many have paid.

Stephane Grenier
LandlordMax Property Management Software