Friday, April 6, 2012

As Home Rents Head Higher, Owning Regains Its Appeal

Source: The Wall Street Journal

Climbing rents for apartments are combining with a continued decline in home prices to push once-reluctant home buyers into finally taking the plunge, say economists and real-estate agents, helping what appears to be a good start to the housing industry's all-important spring selling season.

Although increased buying activity from investors and second-home purchasers are also factors behind the recent pickup in home sales, real-estate agents say they are fielding more calls from anxious tenants complaining about rising rents.

"The rental market has been incredibly hot," said Ronald Peltier, chief executive of HomeServices of America Inc., which owns real-estate brokerages in 21 states. He says rising rents, coupled with slumping home prices and interest rates near record lows, are boosting demand for homes at entry-level prices.

Average apartment rents rose by 2.7% last year while the national vacancy rate dropped below 5% for the first time since 2001, according to a quarterly survey to be released Wednesday by Reis Inc., REIS +0.46%a real-estate research firm.

The broad and sustained growth of the apartment market contrasts sharply with an uneven and tentative housing recovery. During the first quarter, average apartment rents rose and vacancy rates fell in all 82 metropolitan areas tracked by Reis, when compared with a year ago.

The largest rent increases came in San Francisco and San Jose, Calif., which saw increases of 5.9% and 4.9%, respectively. Even boom-to-bust Las Vegas, which has struggled with falling rents in previous quarters, saw average rent rise 1.8% from a year earlier.

Such increases are one reason why analysts at Zelman & Associates believe 2012 will be the first year since 2005 when the share of apartment renters that moves out to buy a house increases from the previous year. "The equation of renting versus owning is becoming much more favorable for owning," said Ivy Zelman, the firm's chief executive.

Unless the economy worsens, there is little sign that rent growth will slow until hundreds of thousands of new apartment units currently under construction hit the market over the next few years.

Nishu Sood, a housing analyst with Deutsche Bank DBK.XE +0.11%who tracks housing costs, says that, historically, the cost to rent an apartment has been about 10% lower than the after-tax cost of owning a home. That rental discount began to fall in 2010 and disappeared entirely last year. By the end of 2011, Mr. Sood's research found that the cost to rent an apartment was about 15% higher than the cost to own a home. Conditions are "overwhelming in the favor of buying now. It is unequivocal," he said.

In San Jose and the Silicon Valley, where home prices have tumbled 36% from the mid-2007 peak, home affordability has more than doubled in the last five years, Mr. Sood said. Affordability has also improved in Long Island and northern New Jersey, where during the boom, renting was half as expensive as buying. Now, it is almost equal.

To be sure, not all markets have seen the same development. In Orange County, Calif., and New York City, where home prices are extremely high, renting is still cheaper. But even in New York, real-estate agents say sales of small studio and one-bedroom apartments are brisk because renters don't want to pay such high amounts to rent.

"The entry-level market is back," said Dottie Herman, president of Prudential Douglas Elliman.

Jennifer Regan and her husband went under contract to buy a three-bedroom home in Martinez, Calif., last month. With a 4.25% rate on a 30-year fixed mortgage, their monthly payments, including taxes and insurance, will be around $600 less than what it costs to rent a comparable house. "I couldn't believe it had gotten so expensive" to rent, said Ms. Regan, 36 years old, who is moving before her oldest son starts school this fall.

It isn't always easy for individual home buyers to make it to the closing table, however. Lending and appraisal standards remain tight, keeping many would-be buyers out of the market. And aspiring buyers are competing with savvy investors who have turned buying and reselling foreclosed homes into a business. Last week, the National Association of Realtors trade group said the number of homes purchased by investors rose 65% during 2011 to 1.2 million, representing 27% of all sales.

And for some renters, the housing crisis has shaken their desire to become owners. "If I was going to buy, I feel like I would be just in the same problem that other homeowners are having with the market," said Laurel Slutsky, 24, who just renewed the one-year lease on her Chicago two-bedroom.

"Right now, all my friends and I are hopping around neighborhoods, and I don't see the benefit in buying and staying in one place."

URL to original article: http://online.wsj.com/article/SB10001424052702304750404577322011443831768.html?mod=WSJ_RealEstate_LeftTopNews

For further information on Fresno Real Estate check: http://www.londonproperties.com

No comments:

Post a Comment