Anyone following the news recently knows that the economy has taken the front seat in the headlines. Gas prices, home sales, mortgages, The sub-prime sector, interest rates, the economic stimulus package, the stock market and most importantly Britney Spears’ mental health and what REALLY happened to Heath Ledger.
How does it all affect the rental market?
Well, my prediction is that the rental market is going to heat up gradually, not explode immediately. But overall, locally and beyond, rents will go up and inventory will go down.
Usually when the sales market struggles people tend to rent and when more people rent it gives the rental market a boost.
Based solely on that fairly sensible theory, the rental market is bound to explode since the sales market is free-falling to one of the worst slumps in its history.
The reason I think the rental effect will be more gradual is that a lot of real estate investors, large and small, amateur and professional, went into what’s known as “The Flip Craze” (The purchase of property for the purpose of quickly renovating/building and selling for a profit. In many cases it involved converting the legal status of units into condos) That craze overwhelmed the market with a huge inventory of condos.
A lot of those developers are now faced with some difficult decisions:
- Try and sell anyway for their desired price and wait an indefinite amount of time for that to maybe happen
- Sell and take a loss, just to try and minimize the damage (short sale)
- Foreclose
- Rent the unit. Which in many cases allows them to hold on to the property until the market bounces back.
I see a lot of number 4’s out there.
That said, foreclosure rates are close to or past all-time highs in certain areas, many of those properties are multi-family homes or multi-unit buildings. Mortgage companies and banks that foreclose on those properties usually try and sell them.
Because selling a vacant property is a much easier task, if the property that is foreclosed upon has tenants those tenants will be evicted, forcefully, like by cutting off heat, electricity and water. So many people find themselves in a surprise apartment-hunt situation which makes for some more competition than usual. The result is rents will go up and broker fees will be harder to avoid.
Although I can’t control rents going up I can say that smart renters will use GrandCentralApartments.com and will avoid Broker Fees ; )
IG
Filed under: Current Trends by IG on
02.01.2008
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