Some Of The Hottest Rental Markets Are Starting To Cool

apartment for rent, for rent sign, building, NYC

Photo: Flickr / brrad

Recent reports have shown home prices rising, especially in the housing markets which were hardest hit in the crash.Investors, buying in bulk, have been swarming these distressed markets, seeking to take advantage of a thriving new single family rental market.

The strong demand from investors has pushed supplies down, causing prices to rise. But as housing recovers, and more fence-sitters decide to jump in, will the rental market remain strong?

Rents are still rising.

Nationally, rents rose 4.7 per cent in August from a year ago, which, while still a gain, is down from the 5.8 per cent annual increase in May – making it the slowest rise since March, according to Trulia.com. Some markets, however, are still hot, with rents up around 10 per cent year over year. These include Houston and Seattle, Denver and San Francisco.

“Rents had been on fire earlier this year, but some of the hottest rental markets are starting to cool,” said Jed Kolko, Trulia’s Chief Economist. “New construction that started last year is finally coming onto the market, giving renters more choices and some relief from rising rents. Still, rents are climbing in nearly all of the major rental markets.”

Investors in the multi-family apartment space don’t seem concerned, as we noted in a post last week, with most saying that an improving housing market can peacefully co-exist with a strong rental market for a time, as long as rents don’t become completely unaffordable.

Much of the improvement in housing is thanks to investors, not regular home buyers. Witness yet another drop in weekly mortgage applications today, the fifth straight week, according to the Mortgage Bankers Association. Applications to purchase a home were down just under one per cent. This as the rate on the 30-year fixed fell. Again that points to a continued strong rental market.

A new report from Rent.com quantified many of the reasons potential buyers are delaying home ownership: 47 per cent are waiting to save a down payment , 11 per cent are waiting for the real estate market to stabilise, 22 per cent are waiting for their credit to improve to qualify for a home loan, and 20 per cent are waiting to feel more secure about their employment situation.

A bright spot is that while construction spending on home renovations is falling, apparently renters are investing more in their spaces. 47 per cent have spent more money in the last three years or plan to spend more to improve their rental units, according to Rent.com. 63 per cent of renters planning to spend more are going to spend money on furniture and décor they can take with them.

Credit, attitudes toward home ownership and a still shaky housing recovery will likely hold the rental market in good stead for many years. An easing in rental rates is likely due to more supply coming on line in the multi-family sector, while single family rent strength will vary neighbourhood to neighbourhood.

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