Tuesday, May 30, 2006

Apartment rents expected to rise 5%

If you're a renter trying to save for a down payment, or you're just trying to move out of your parents' home, it'll likely get harder this year. Rents are rising faster than they have in six years.

Apartment rents are expected to increase 5.3% this year - about double last year's increase - the National Association of Realtors says. That's the highest jump since 2000, when the Internet boom created lots of jobs for young adults out of college. In April, rising rents were largely to blame for a sharp jump in consumer inflation.

"This is going to be the highest rental increase year since 2000, and it's going to be a broad-based increase in rents, not just limited to a few markets," said Hessam Nadji, who manages research for Marcus & Millichap, a real estate firm in Northern California.

"Renters are already facing higher energy prices and relatively moderate wage growth," Nadji says. "This is going to really squeeze a lot of households."

No one needs to tell Rosa Shephard. The $1,600 rent she pays for a two-bedroom apartment in Laguna Beach, Calif., will rise by $100 a month this Friday. It's a 6.3% increase, and Shephard's salary as an administrative assistant isn't rising as much, so she's trying to find a cheaper place to live.

"I'm trying to find a one-bedroom for $1,200," says Shephard, 53. "It just doesn't exist."
There are four driving forces:

•Job growth. U.S. businesses have generated 4 million new jobs in the past two years. New hires typically look for rental property.

•Rising home prices. From 1980 to 2000, the median price of a home was 12 times higher than the annual average rent. By this spring, it was 21 times higher, Nadji said. The median-priced home now costs $223,000, making the American dream a fantasy for more renters, whose competition for apartments then drives up rents. There's little relief in sight in such areas as Phoenix and South Florida, where home prices soared more than 30% in the first quarter of this year over the same quarter last year.

• Condo conversions. When the housing market was at its blazing peak, many investors who owned apartment buildings kicked out tenants and sold the units as condos. One out of three apartment buildings sold last year were converted into condos for sale. That took 191,400 apartments off the market, according to the NAR. In addition, the number of new apartment buildings under construction is down this year.

• Hurricane Katrina. About half the 100,000 displaced families in the New Orleans area haven't returned. Most of them were renters, says Lawrence Yun, an NAR economist, and "that's putting additional pressure on rental units throughout the country."

Friday, May 19, 2006

Boom May Be Over, But Landing Will Be Soft

Boom May Be Over, But Landing Will Be Soft(May 19, 2006) -- WASHINGTON – The five-year boom in home sales may be over, but strong demographics and job growth promise only a short-term slowdown in most U.S. markets, NAR’s Chief Economist David Lereah told REALTORS® at Thursday’s Economic Issues & Residential Real Estate Business Trends Forum. His presentation took place during the 2006 REALTORS® Midyear Legislative Meetings & Trade Expo.

Speculators and rising interest rates have ended the largest acceleration ever in existing-home prices, but the process is “a needed cleansing” that will help restore balance, said Lereah. Nationally, homes appreciated a remarkable 12.5 percent on average in 2005. Appreciation for 2006 will cool to 5.7 percent. But even with the slowdown, 2006 will be the fourth best year ever for residential real estate sales with an estimated 6.62 million existing homes sold, Lereah noted.

In 2007, Lereah expects to see existing-home sales rise slightly to 6.7 million units but appreciation to slow to 4.2 percent. To help the industry track performance, NAR’s Research Department is working to develop a real-time pricing tool, “a real estate ticker,” that will update national average home prices every 15 minutes based on data from MLSs, Lereah told the crowd.

To some degree, the next year or two will be “a tale of two cities,” said Lereah. Cities such as San Diego, Miami, and Naples, Fla., that have seen high price appreciation will see sharp drops in sales. Already, between first quarter 2005 and first quarter 2006, existing-home sales declined by 15 percent to 20 percent in Florida, California, and Arizona, he said.

On the other hand, markets that didn’t see exuberant appreciation during the boom are actually experiencing shorter days on market. Lereah pointed to Charlotte, Dallas, and St. Louis as examples of this trend. Even declining markets should remain healthy as long as they have diversified economies and strong job growth, he said.

“As long as days on the market don’t extend beyond six months, there’s no need to be concerned,” he said. The possible exception might be California, where a high number of adjustable-rate and interest-only mortgage loans might combine with a price downturn to create problems.

Other possible clouds on the real estate horizon: inflation, high oil prices, and rising interest rates. Yet, Lereah said he doesn’t expect a recession. Strong business spending and a sound economy that should grow 3.5 percent in 2006 promise a positive outlook for real estate. And mortgage interest rates should stay low; Lereah said he expects two more rate hikes from the Federal Reserve in 2006, but rates won’t rise above 7 percent for the year.

“The real estate market got ahead of itself, but now we’re going back to fundamentals and a more balanced market,” he concluded.

— By Mariwyn Evans for REALTOR® Magazine Online