The American dream of homeownership has dissolved into the daydream of a decent rental, and some cities are making it very easy on their month-to-month newcomers.
Click here to see the dream markets for landlords >
Vacancies among the nation’s rental properties dropped from 6.6 per cent last year to 6.2 per cent last quarter, as 44,000 more units found renters during that period than during the same period a year earlier, according to Reis (REIS).
That’s the largest increase during that normally slow winter period since 2000 and the lowest vacancy rate since 2008.
“The vacancy rate skyrocketed to a record high of 8 per cent in 2009, so it wasn’t like this sector dodged a bullet,” says Victor Canalog, Reis’ vice president of research and economics.
“Since we’ve only been around since 1980, we’ve never seen a vacancy rate that high, but we saw that sector recover during every quarter in 2010 faster than the rate of the economy.”
Slight improvements in job growth and employment figures are driving demand for housing again, but even the 4.5 per cent rate on a 30-year fixed-rate mortgage quoted by Fannie Mae this month—the lowest since December—haven’t helped year-to-date existing home sales plummet to 13 per cent of what they were just before the first-time homebuyer credit expired during the same period last year, according to the National Association of Realtors.
The foreclosure rate is levelling off, according to RealtyTrac, but the Census Bureau found that U.S. homeownership dropped from 69 per cent in 2004 to 66.5 per cent at the end of last year.
The $163,700 median existing home price is 5 per cent lower than it was a year ago, but potential homebuyers facing 9.1 per cent national unemployment and tight credit requiring a 20 per cent down payment on home purchases are content to wait it out in a rental.
Potential landlords just love to hear that. Average asking prices ($1,047) and actual paid rent ($991) are up roughly 2 per cent as 79 cities reported rent increases and shrinking rental stock.
Reis noted that landlords who were offering incentive packages a year ago that gave tenants three to four months free on 12- to 15-month leases have cut those concessions to a month or less.
“Those rents basically bring you back to levels we last saw in 2008 before the downturn began,” Canalog says. “It’s not even a question of how soon we’ll get back to previous peaks—we’re there already.”
With help from Reis, TheStreet took a look at the U.S. rental market and came up with the best 10 places to buy a rental property and cash in on rising rents and dwindling supplies. We haven’t seen cities this excited about rent since Broadway in the ’90s.
Click here to see the dream markets for landlords >
This post originally appeared at TheStreet.
Vacancy Rate: 8.6%
Average Rent: $803
One in every 89 homes in Las Vegas is being foreclosed upon, according to RealtyTrac, with sections of the city seeing foreclosures on one in every 25 houses.
The prices of those homes have tanked as a result of that 3.21% foreclosure rate--the highest in the country--with the average price of existing homes dropping from $220,000 two years ago to just $128,000 today.
Where once Las Vegas had more migration from within the US than any other US city, the exodus of those who fuelled the boom is driving the bust.
'On top of the fact that other sectors like housing or even retail properties are crumbling in Las Vegas, it's bringing the rental market down with it because the population is in flux,' Canalog says. 'It's not Detroit, but it's certainly not experiencing the kind of growth that Las Vegas is used to or depends on.'
In Las Vegas, it's time to buy in before a turnaround--it would be a buyer's paradise if any buyers existed.
Unemployment still hovers around 12%, which is better than the 15% rate from this time last year, and tourist traffic at McCarran airport was down nearly 3% last year.
Even rentals have been a tough sell. The vacancy rate's slow decline is coupled with a 2.6% drop in rental prices over the past year, making Las Vegas one of only two cities nationwide to post an overall rent decrease within the past year.
That wouldn't be so bad if rents in Las Vegas hadn't been declining steadily since 2008. Low rents and rentable properties are there if renters want them, but renters who think they can do better might consider standing their ground. Rents fell 1.6% during the fall, but slowed to a 0.1% decline last quarter.
'You could say that the distress is lessening in Las Vegas, but there are certainly still problems there,' Canalog says.
Vacancy Rate: 7.9%
Average Rent: $871
With rents that have only risen 0.2% in the last year, Orlando really is the most magical place on Earth.
'That's not much to call home about if you're a landlord,' Canalog says. 'The condo conversion boom that happened during the housing boom really went bust as well, and the condo flippers ended up being reluctant owners who, if they haven't been foreclosed upon, probably ended up renting the properties out.'
That's nobody's idea of a dream vacation, and it's turned into a nightmare for Orlando.
A place best known for trying to sell happiness is hurting just as much as Sin City's adult playground in the desert--and, like Las Vegas, is bottoming out.
Median existing home prices have dropped 7.6% in the past year and from $209,000 to $120,000 since 2008. The city's 0.68% foreclosure rate still ranks among the country's Top 50.
Tourism continues to bolster Orlando's business and has helped drop the unemployment rate from 11% a year ago to 9.9% today, but that's still above the national average. With that kind of instability, having rent that likely won't move too much can be a nice consolation.
Vacancy Rate: 8.3%
Average Rent: $584
Tulsa's rentals are cheap, available and growing in value, but there's a bigger draw in this section of Oklahoma: jobs.
Tulsa still lags behind Oklahoma City's sparkling 4.5% unemployment rate, but its own 5.3% jobless rate is nothing to sneeze at, especially considering it stood at 8.6% as recently as last March.
Growing natural gas companies such as Williams(WMB) and Oneok(OKE) and expansion by BOK Financial(BOKF) help, but an economic plan that convinced American Airlines to keep its maintenance centre there and made enhancements to Oklahoma University and Oklahoma State University facilities in town helped cut that jobless number in a hurry.
Despite its recent economic good fortune, Tulsa is still in the middle of a slight housing slump.
Average home prices dropping from $137,000 in 2008 to $123,000 today. With plenty of universities including the University of Tulsa and Oral Roberts University around to keep both the economy and rentals humming, however, the difference could be made up on a month-to-month basis.
Vacancy Rate: 11.2%
Average Rent: $682
Last year's heavy rain and flooding certainly didn't help a city that was already saddled with 10% unemployment and falling housing prices that would drop 8.5% by year's end, but renters continue to be treated well here and can play a big role in the city's recovery.
No city in America has a rental vacancy percentage as high as that of Memphis, and few cities can match its $682-a-month average rent. Knoxville's less expensive at $596 a month, but only 5.8% of its rental properties are vacant.
Nashville, meanwhile, is similarly tight on housing, but bumps up the price of an average rental to $757. That figure's growing more quickly, too, as rents have risen 1.9% in Nashville over the past year compared with 1.4% in Memphis.
Blues, barbecue, Beale Street and palatable basketball from the University of Memphis and Memphis Grizzlies still make Memphis a great place to be, but its glut of rentals and relatively stable prices make it a bargain.
Vacancy Rate: 10.2%
Average Rent: $800
Welcome to the other city in America where rents declined last year. Though Jacksonville's average rent is down only 0.3% over the last year, that's still a welcome change from the 1.9% average increase the U.S. experienced during the past year.
Much like Las Vegas, Jacksonville's labour and housing market was hammered by the recession. Median housing prices dropped from $174,600 in 2008 to $127,400 today and fell 9.5% in the past year alone.
Unemployment's made new buyers a bit scarce as well, with the unemployment rate climbing as high as 11.2% last March before coming back down to 9.7%.
'Things are getting healthier for Jacksonville, but you'll notice that rents are still kind of tepid,' Canalog says.
Unlike Las Vegas, Jacksonville has a fairly stable economic base as home to the third-largest military presence in the country. A submarine base, naval air station, naval station and Marine base prevent the city from experiencing the same uncertainty as Las Vegas, while rent prices have risen in the past two quarters to help stabilise the rental market somewhat.
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