Real Estate Market

Renting gets tricky

(7/1/2011) Erate Exclusive - Don't get too cozy in that rental.

It may have been cheaper than buying when you moved in, but things are changing.

A long term contract will protect you from rising rents for the duration of the contract, sure. Then what?

What if home prices turn around, you want to beat the upturn and buy, but you're contractually locked in -- long term?

A short term contract, which your landlord is likely to throw at you these days, leaves you at the mercy of rent hikes, with only limited protection in some areas where rent control rules.

Too many rent hikes and the added cost could nibble away at any savings you hoped to use as a down payment to buy a home later.

Renting today with plans to buy later is a conundrum that demands running the rent-vs-buy calculation frequently as well as keeping close tabs on the housing markets.

Home prices are still in the tank, but credit is as tight as ever, making buys difficult.

On the other side of the street, rents are on the rise.

For the first time in eight months, Standard & Poors/Case-Shiller reported a month-over-month increase in home prices, a paltry 0.8 percent for the 10-City Composite and another paltry 0.7 percent increase in the 20-City Composite.

Year-over-year the composites are still down by 3.1 percent for the 10-City Composite and down 4 percent for the larger composite.

Not much new there.

"The seasonally adjusted numbers show that much of the improvement reflects the beginning of the Spring-Summer home buying season. It is much too early to tell if this is a turning point or simply due to some warmer weather," said David M. Blitzer, Chairman of the Index Committee at S&P Indices. The rental market is the one to watch.

In the second quarter of 2011, MPF Research said the apartment sector turned in a near-record revenue growth performance as occupancy jumped 0.8 percent during the three months of the second quarter and rents rose 1.7 percent, or about $20 on a $1,000 rental.

Rents can be good for your credit score these days. Maybe not so much your savings account.

Some markets have been hit hard.

The soft booming Silicon Valley (San Jose, CA) saw rents jump at an annualized rate of 12.2 percent; San Francisco, 7.7 percent; Seattle, 7.1 percent; Oakland 6.6 percent and Portland, they were up 6.4 percent.

More and more shelter-seekers have the same idea and with a lapse in rental housing building created by the past housing boom's rush to build primarily for buyers, the demand for apartments is playing havoc on rents.

"The last time quarterly revenue growth came in at such strong levels was at the height of the tech boom in 2000 and early 2001," said Greg Willett, MPF Research vice president.

"That previous peak was driven in large part by huge numbers posted in just a handful of tech-heavy metros, in contrast to the much broader upturn now seen all across the country," Willett added.

Other metros with rents rising 5 percent or more included Austin, Pittsburg, Minneapolis, Chicago, Denver and Boston.

Average occupancy for U.S. apartments reached 94.3 percent in 2011's second quarter. That rate is up from a low of 91.8 percent recorded at the bottom of the recent cycle in late 2009, but still below the 95.6 percent occupancy achieved prior to the recession which began in 2008.

Apartments are going fast.

Typical monthly rent increased to $1,054 as of June, MPF reported. The past quarter's sizable rent jump accounted for almost half of the total 3.8 percent increase in pricing seen since mid-2010.

"While increases in total employment aren't occurring at the pace we'd like to see, it's important to realize that young adults, who tend to be renters rather than home buyers, are capturing a disproportionately large share of the job additions. In turn, some who previously went home to live with mom and dad or doubled up into roommate living arrangements are now forming their own households," Willett explained.

 

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