I recently read an article in the Denver Post citing vacancy in the Denver area at 3.8% (http://www.denverpost.com/business/ci_15956602) and I couldn’t believe my eyes. That is the lowest number that I have ever seen for the Denver metro in nearly 20 years of paying attention to it. Other major metros have a similar story, and in Canada vacancy seems non-existent. When we started RentClicks 7 years ago, it was common to see vacancy rates as high as 20%!
The housing bubble is responsible for both extremes in the rental market. In the early part of the decade speculative investors were buying investment properties and flooding the market with inventory. At the same time, renter’s were becoming homeowners through the abundance of sub-prime lending. The number of available units was skyrocketing, and the number of renters was dropping. This was a deadly combination for the rental market and led to historically high vacancy rates.
Now the flip side. Many of the homes that were purchased as investments by rookie investors have gone through or are sitting in the foreclosure process in limbo on the books of banks that are trying to unload them. The banks are trying to unload them on a saturated housing market. Add to that the increased number of previous homeowners that have been foreclosed on and are back in the rental market, and you have a healthy combination for the rental market.
What does all of this mean to you? I will break down the consequences of the current market for those that are trying to make sense of it:
For Renters: Low vacancy means low bargaining power and higher rents. It also means that landlords can be more selective in who they choose to rent their properties to. There is not as much room for negotiation on price, and dragging your feet could mean losing the unit.
For Property Managers: The first 8 years of this century were some of the most challenging ever. Now it’s time to make some hay. With low vacancy and tons of homes on the market, tenants and new clients should be very abundant. This is the time to add new properties, raise rents, and weed your garden of the challenging properties and tenants. For once, this business is kind of fun.
For Investors: I believe that real estate values are within 5% of the bottom and that now might be the best time in 80 years to invest in residential real estate. As long as the banks have a glut of foreclosures on their hands, the market will remain slow. I think this will take as long as 5 years. The combination of low prices, low interest rates, and a glut of tenants greatly increases your odds of success in the investment market over the next few years.
My prediction for the real estate market is that we are at or near the bottom, but will have a very long and slow recovery. As I stated in a previous post (http://blog.freerentalsite.com/2010/08/27/the-free-market-prevails-again/), the free market cannot be fooled. Housing values have been out of control for the last few years and the market is seeking equilibrium. Once that equilibrium is reached we will see a return to a normal real estate environment.
