Rising U.S. rents suggest housing boom is cooling...
http://www.iht.com/articles/2005/08/25/business/rent.php
By David Leonhardt The New York Times
FRIDAY, AUGUST 26, 2005
Rents are rising again across the United States, squeezing tenants who are already coping with high gas prices and bringing relief to landlords after a deep five-year slump.
The turnaround appears to be another sign that the boom in house prices and sales is finally slowing, as homes have become so expensive in many big metropolitan areas that some people have decided to rent instead.
A government report on Wednesday also offered new evidence that the housing boom could be reaching a peak. The median price of a newly built home fell to $203,915 in July, from $218,270 in June, after having risen in the winter and spring, the Commerce Department said.
Still, the number of new homes that were sold continued to grow, and economists cautioned that the recent housing slowdown could turn out to be just a pause.
But rents have clearly changed direction, even if the increases have been small. With the economy growing and mortgage rates inching up, more people are looking to rent apartments and homes rather than buy them. At the same time, many buildings are being turned into condominiums, reducing the supply of rental properties.
"It seems like the tide has finally turned," said Michael Zaransky, the co-chief executive of Prime Property Investors, which owns 15 buildings in Chicago.
Rents in about 85 percent of large U.S. metropolitan areas have climbed in the last year, according to Global Real Analytics, a research company in San Francisco. In late 2003, rents were falling in 85 percent of markets.
Only in New York, Southern California, South Florida, and a few other scattered places have average rents been rising generally.
In Chicago, people who moved into a small brick building on the leafy corner of Sherwin Avenue and Paulina Street two years ago had it very good. They did not have to put down a security deposit, the $50 application fee was waived, and, best of all, they got to live rent-free for two months. By last summer, the enticements had shrunk to just one month of free rent. Today, all that a new tenant receives for signing a $1,100-a-month lease are the keys to the front door.
Nationwide, the vacancy rate for rental homes fell to 9.8 percent in the second quarter, after having climbed in early 2004 to 10.4 percent, the highest level since the Census Bureau began keeping statistics in 1956.
Even in Northern California - where average rents fell about 25 percent after the dot.com crash, according to RealFacts, a research firm there - prices have reversed direction.
"I'm appalled at the rents and what they are asking in relation to what they are giving," said Shari West, 47, who has been looking for a two-bedroom place in Castro Valley, east of San Francisco.
The apartments she has seen cost almost $1,800 a month, about $100 or $200 more than they did when she briefly looked last summer, she recalled. The buildings still offering concessions, like a free month of rent or a reduced security deposit, are in neighborhoods where West said she did not want to live.
In most places, the rent increases have been smaller than the ones West has found - smaller, in fact, than inflation in the rest of the economy. The average rent nationwide rose 2.5 percent between the spring of 2004 and this spring. It had fallen 4.5 percent from 2001 to 2003, according to Global Real Analytics.
Outside the Bay Area, many of the biggest declines happened in cities like Dallas, Denver, and Memphis, where abundant land and light regulation allowed builders to construct thousands of new houses. Rents have continued to drop in those cities over the last year.
But they have begun rising in Seattle, Las Vegas, Phoenix, Kansas City, Cleveland, Philadelphia and Washington.
"It seems to us that the market bottomed last year," said V. James Marfuggi, chief operating officer of EPT Management, in El Paso, Texas. "This will be the first year that concessions have not increased."
Some apartment owners have raised the effective rent on their apartments by cutting back on those concessions while keeping the announced monthly rent roughly the same.
Other landlords have become pickier about which tenants they accept, no longer signing leases with those who have spotty credit records or who must stretch to afford the rent, said Paul Magyar, director of leasing at Chicago Apartment Finders, a listing service.
The surge in condominium conversions is helping push up rents by taking many rental buildings off the market. Looking at weak rents and high sale prices, many owners have decided that their buildings are not worth keeping.
Still, the market remains worse for landlords, and better for renters, than it has been for much of the last two decades, in large part because home sales remain healthy. Mortgage rates are low, and many people are using creative loans that hold down their initial payments, like interest-only mortgages, to become first-time home buyers.
Carolyn Marshall in San Francisco and Vikas Bajaj in New York contributed reporting for this article.
Rents are rising again across the United States, squeezing tenants who are already coping with high gas prices and bringing relief to landlords after a deep five-year slump.
The turnaround appears to be another sign that the boom in house prices and sales is finally slowing, as homes have become so expensive in many big metropolitan areas that some people have decided to rent instead.
A government report on Wednesday also offered new evidence that the housing boom could be reaching a peak. The median price of a newly built home fell to $203,915 in July, from $218,270 in June, after having risen in the winter and spring, the Commerce Department said.
Still, the number of new homes that were sold continued to grow, and economists cautioned that the recent housing slowdown could turn out to be just a pause.
But rents have clearly changed direction, even if the increases have been small. With the economy growing and mortgage rates inching up, more people are looking to rent apartments and homes rather than buy them. At the same time, many buildings are being turned into condominiums, reducing the supply of rental properties.
"It seems like the tide has finally turned," said Michael Zaransky, the co-chief executive of Prime Property Investors, which owns 15 buildings in Chicago.
Rents in about 85 percent of large U.S. metropolitan areas have climbed in the last year, according to Global Real Analytics, a research company in San Francisco. In late 2003, rents were falling in 85 percent of markets.
Only in New York, Southern California, South Florida, and a few other scattered places have average rents been rising generally.
In Chicago, people who moved into a small brick building on the leafy corner of Sherwin Avenue and Paulina Street two years ago had it very good. They did not have to put down a security deposit, the $50 application fee was waived, and, best of all, they got to live rent-free for two months. By last summer, the enticements had shrunk to just one month of free rent. Today, all that a new tenant receives for signing a $1,100-a-month lease are the keys to the front door.
Nationwide, the vacancy rate for rental homes fell to 9.8 percent in the second quarter, after having climbed in early 2004 to 10.4 percent, the highest level since the Census Bureau began keeping statistics in 1956.
Even in Northern California - where average rents fell about 25 percent after the dot.com crash, according to RealFacts, a research firm there - prices have reversed direction.
"I'm appalled at the rents and what they are asking in relation to what they are giving," said Shari West, 47, who has been looking for a two-bedroom place in Castro Valley, east of San Francisco.
The apartments she has seen cost almost $1,800 a month, about $100 or $200 more than they did when she briefly looked last summer, she recalled. The buildings still offering concessions, like a free month of rent or a reduced security deposit, are in neighborhoods where West said she did not want to live.
In most places, the rent increases have been smaller than the ones West has found - smaller, in fact, than inflation in the rest of the economy. The average rent nationwide rose 2.5 percent between the spring of 2004 and this spring. It had fallen 4.5 percent from 2001 to 2003, according to Global Real Analytics.
Outside the Bay Area, many of the biggest declines happened in cities like Dallas, Denver, and Memphis, where abundant land and light regulation allowed builders to construct thousands of new houses. Rents have continued to drop in those cities over the last year.
But they have begun rising in Seattle, Las Vegas, Phoenix, Kansas City, Cleveland, Philadelphia and Washington.
"It seems to us that the market bottomed last year," said V. James Marfuggi, chief operating officer of EPT Management, in El Paso, Texas. "This will be the first year that concessions have not increased."
Some apartment owners have raised the effective rent on their apartments by cutting back on those concessions while keeping the announced monthly rent roughly the same.
Other landlords have become pickier about which tenants they accept, no longer signing leases with those who have spotty credit records or who must stretch to afford the rent, said Paul Magyar, director of leasing at Chicago Apartment Finders, a listing service.
The surge in condominium conversions is helping push up rents by taking many rental buildings off the market. Looking at weak rents and high sale prices, many owners have decided that their buildings are not worth keeping.
Still, the market remains worse for landlords, and better for renters, than it has been for much of the last two decades, in large part because home sales remain healthy. Mortgage rates are low, and many people are using creative loans that hold down their initial payments, like interest-only mortgages, to become first-time home buyers.
Carolyn Marshall in San Francisco and Vikas Bajaj in New York contributed reporting for this article.
Rents are rising again across the United States, squeezing tenants who are already coping with high gas prices and bringing relief to landlords after a deep five-year slump.
The turnaround appears to be another sign that the boom in house prices and sales is finally slowing, as homes have become so expensive in many big metropolitan areas that some people have decided to rent instead.
A government report on Wednesday also offered new evidence that the housing boom could be reaching a peak. The median price of a newly built home fell to $203,915 in July, from $218,270 in June, after having risen in the winter and spring, the Commerce Department said.
Still, the number of new homes that were sold continued to grow, and economists cautioned that the recent housing slowdown could turn out to be just a pause.
But rents have clearly changed direction, even if the increases have been small. With the economy growing and mortgage rates inching up, more people are looking to rent apartments and homes rather than buy them. At the same time, many buildings are being turned into condominiums, reducing the supply of rental properties.
"It seems like the tide has finally turned," said Michael Zaransky, the co-chief executive of Prime Property Investors, which owns 15 buildings in Chicago.
Rents in about 85 percent of large U.S. metropolitan areas have climbed in the last year, according to Global Real Analytics, a research company in San Francisco. In late 2003, rents were falling in 85 percent of markets.
Only in New York, Southern California, South Florida, and a few other scattered places have average rents been rising generally.
In Chicago, people who moved into a small brick building on the leafy corner of Sherwin Avenue and Paulina Street two years ago had it very good. They did not have to put down a security deposit, the $50 application fee was waived, and, best of all, they got to live rent-free for two months. By last summer, the enticements had shrunk to just one month of free rent. Today, all that a new tenant receives for signing a $1,100-a-month lease are the keys to the front door.
Nationwide, the vacancy rate for rental homes fell to 9.8 percent in the second quarter, after having climbed in early 2004 to 10.4 percent, the highest level since the Census Bureau began keeping statistics in 1956.
Even in Northern California - where average rents fell about 25 percent after the dot.com crash, according to RealFacts, a research firm there - prices have reversed direction.
"I'm appalled at the rents and what they are asking in relation to what they are giving," said Shari West, 47, who has been looking for a two-bedroom place in Castro Valley, east of San Francisco.
The apartments she has seen cost almost $1,800 a month, about $100 or $200 more than they did when she briefly looked last summer, she recalled. The buildings still offering concessions, like a free month of rent or a reduced security deposit, are in neighborhoods where West said she did not want to live.
In most places, the rent increases have been smaller than the ones West has found - smaller, in fact, than inflation in the rest of the economy. The average rent nationwide rose 2.5 percent between the spring of 2004 and this spring. It had fallen 4.5 percent from 2001 to 2003, according to Global Real Analytics.
Outside the Bay Area, many of the biggest declines happened in cities like Dallas, Denver, and Memphis, where abundant land and light regulation allowed builders to construct thousands of new houses. Rents have continued to drop in those cities over the last year.
But they have begun rising in Seattle, Las Vegas, Phoenix, Kansas City, Cleveland, Philadelphia and Washington.
"It seems to us that the market bottomed last year," said V. James Marfuggi, chief operating officer of EPT Management, in El Paso, Texas. "This will be the first year that concessions have not increased."
Some apartment owners have raised the effective rent on their apartments by cutting back on those concessions while keeping the announced monthly rent roughly the same.
Other landlords have become pickier about which tenants they accept, no longer signing leases with those who have spotty credit records or who must stretch to afford the rent, said Paul Magyar, director of leasing at Chicago Apartment Finders, a listing service.
The surge in condominium conversions is helping push up rents by taking many rental buildings off the market. Looking at weak rents and high sale prices, many owners have decided that their buildings are not worth keeping.
Still, the market remains worse for landlords, and better for renters, than it has been for much of the last two decades, in large part because home sales remain healthy. Mortgage rates are low, and many people are using creative loans that hold down their initial payments, like interest-only mortgages, to become first-time home buyers.
Carolyn Marshall in San Francisco and Vikas Bajaj in New York contributed reporting for this article.
Rents are rising again across the United States, squeezing tenants who are already coping with high gas prices and bringing relief to landlords after a deep five-year slump.
The turnaround appears to be another sign that the boom in house prices and sales is finally slowing, as homes have become so expensive in many big metropolitan areas that some people have decided to rent instead.
A government report on Wednesday also offered new evidence that the housing boom could be reaching a peak. The median price of a newly built home fell to $203,915 in July, from $218,270 in June, after having risen in the winter and spring, the Commerce Department said.
Still, the number of new homes that were sold continued to grow, and economists cautioned that the recent housing slowdown could turn out to be just a pause.
But rents have clearly changed direction, even if the increases have been small. With the economy growing and mortgage rates inching up, more people are looking to rent apartments and homes rather than buy them. At the same time, many buildings are being turned into condominiums, reducing the supply of rental properties.
"It seems like the tide has finally turned," said Michael Zaransky, the co-chief executive of Prime Property Investors, which owns 15 buildings in Chicago.
Rents in about 85 percent of large U.S. metropolitan areas have climbed in the last year, according to Global Real Analytics, a research company in San Francisco. In late 2003, rents were falling in 85 percent of markets.
Only in New York, Southern California, South Florida, and a few other scattered places have average rents been rising generally.
In Chicago, people who moved into a small brick building on the leafy corner of Sherwin Avenue and Paulina Street two years ago had it very good. They did not have to put down a security deposit, the $50 application fee was waived, and, best of all, they got to live rent-free for two months. By last summer, the enticements had shrunk to just one month of free rent. Today, all that a new tenant receives for signing a $1,100-a-month lease are the keys to the front door.
Nationwide, the vacancy rate for rental homes fell to 9.8 percent in the second quarter, after having climbed in early 2004 to 10.4 percent, the highest level since the Census Bureau began keeping statistics in 1956.
Even in Northern California - where average rents fell about 25 percent after the dot.com crash, according to RealFacts, a research firm there - prices have reversed direction.
"I'm appalled at the rents and what they are asking in relation to what they are giving," said Shari West, 47, who has been looking for a two-bedroom place in Castro Valley, east of San Francisco.
The apartments she has seen cost almost $1,800 a month, about $100 or $200 more than they did when she briefly looked last summer, she recalled. The buildings still offering concessions, like a free month of rent or a reduced security deposit, are in neighborhoods where West said she did not want to live.
In most places, the rent increases have been smaller than the ones West has found - smaller, in fact, than inflation in the rest of the economy. The average rent nationwide rose 2.5 percent between the spring of 2004 and this spring. It had fallen 4.5 percent from 2001 to 2003, according to Global Real Analytics.
Outside the Bay Area, many of the biggest declines happened in cities like Dallas, Denver, and Memphis, where abundant land and light regulation allowed builders to construct thousands of new houses. Rents have continued to drop in those cities over the last year.
But they have begun rising in Seattle, Las Vegas, Phoenix, Kansas City, Cleveland, Philadelphia and Washington.
"It seems to us that the market bottomed last year," said V. James Marfuggi, chief operating officer of EPT Management, in El Paso, Texas. "This will be the first year that concessions have not increased."
Some apartment owners have raised the effective rent on their apartments by cutting back on those concessions while keeping the announced monthly rent roughly the same.
Other landlords have become pickier about which tenants they accept, no longer signing leases with those who have spotty credit records or who must stretch to afford the rent, said Paul Magyar, director of leasing at Chicago Apartment Finders, a listing service.
The surge in condominium conversions is helping push up rents by taking many rental buildings off the market. Looking at weak rents and high sale prices, many owners have decided that their buildings are not worth keeping.
Still, the market remains worse for landlords, and better for renters, than it has been for much of the last two decades, in large part because home sales remain healthy. Mortgage rates are low, and many people are using creative loans that hold down their initial payments, like interest-only mortgages, to become first-time home buyers.
