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Prices for single-family homes have now risen for twelve consecutive months. Continued restriction in the credit markets is making it more difficult for families to afford home ownership amid these increases, especially in highly desirable locales where supply of homes is dropping. Nationally, housing inventory is estimated at just 4.7 months. At the same time, sales of distressed properties are still a substantial market segment, making up 25% of all home sales in February 2013. 32% of all homes sales during the month were all cash transactions, indicating that investors with an eye on the rental market are fueling significant real estate activity. Confidence Increases in a Growing Rental Market Investors are steadily growing more confident in the commercial real estate sector, and so are lenders. Multifamily loan originations are sharply up, and that trend is expected to continue based on data from the Mortgage Bankers Association. It helps that Fannie Mae and Freddie Mac, acting under government direction, are reducing the number of direct permanent loans offered on multi-family properties. A wider range of competitive financing options should emerge from private lenders, as long as investors meet lender standards. In many respects the rental market of today is entirely unique. One of the more singular trends is that rental rates are rising at the same time as homeownership rates, which is not usually seen. The primary reason for the lockstep gains is most likely tied to one of the exceptional results of the recession: Families and friends “doubled up” in single- and multi-family housing to save on housing costs, and now that the economy is recovering, these households are de-coupling and establishing new, separate households. Moving to Develop Rental Opportunities Investors are reliant on a number of factors when deciding where and when to pursue a rental opportunity. The foreclosure inventory for conversions in many areas is on the decline, but is far from over. Once locating a likely area with a supply of potential properties, the next items to consider are vacancy rates, growth in rental demand, growth in population, and economic growth potential. Chicago has a strong rental market, with vacancy rates across the Chicago metropolitan area at 3.2%. Certain areas have even lower vacancy rates, with urban Glenview/Evanston reporting vacancy rates around 2.6%. Data from the Chicago Metropolitan Agency for Planning predicts that the vacancy rate will continue to decrease through 2016 as the new units constructed fail to keep pace with demand. As a result, annual rent increases are anticipated between 4% and 6%. In Portland, Oregon, the Metro Multifamily Housing Association estimates that demand for rental units has pushed rental rates higher by about 7% annually since 2010, with average vacancy rates across the city well below 4%. The foreclosure rate remains steady at 2.54%, against an overall delinquency rate of 5.27%. Though lower than the national average, this indicates a supply of distressed properties available for conversion to meet rental demand. Denver, Colorado is experiencing a white hot rental market, with multi-family vacancy rates steadily dropping and consistently averaging below 5%. The vacancy rates are even lower for single family homes held out for rent, which was estimated at 1.7% as of the end of 2012. Statewide, Colorado ended 2012 with the 10th highest rate of foreclosures in the U.S., presenting a tempting opportunity mix for distressed property investors.
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foreclosure, distressed properties, real estate,
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