Interest Rate Roundup

Wednesday, December 06, 2006

Rent growth poised to slow: WSJ

I've been predicting for a while that the surge we've seen in rents would subside. Consider it another side effect of the housing bust. Rents surged during the late stages of the housing boom for a few reasons (many apartments were converted to condos, taking out supply ... frustrated potential home buyers gave up and rented instead, etc.) You can read this piece I wrote a little while back for full details.

Lo and behold, the Wall Street Journal is reporting on this trend today. I can't link to the paid subscription site. But here are a couple key facts ...

* Reis Inc., a New York research firm, says the number of apartments for rent ticked up for the first time in two years in Q3

* Reis Chief Economist Sam Chandan cut his forecast for 2007 rent growth to 3.6%. That's down from 4.2% this year.

* In addition to traditional apartment "re-conversions" (apartments that were converted to condos going back to apartments), there are tons of "shadow inventory" units. Those are units that individual condo buyers snapped up during the flipper frenzy, hoping to unload at a profit. But now, they can't sell. So they're choosing to rent instead to help pay their mortgages. This inventory doesn't get captured in traditional analysis.

One anecdote: An apartment complex right outside my neighborhood was snapped up for conversion many months ago. It was flipped back to a rental complex rather quickly. Then in the past few weekends, I've seen signboard wearers promoting one month free rent.


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