Wednesday, July 29, 2009

WITH MORE HOME BUYERS IN THE MARKET, DENVER RENTAL VACANCIES RISE

My personal feeling is that the Denver Metro Area housing market "hit bottom" in March or April of 2008. That's when inventory was highest, buyers were scarcest, and sellers (including banks) were discounting like crazy to get homes sold.

That was probably also about the peak of the last rental cycle, when vacancies for single family rental homes were below 3% (apartment vacancies were about 6%) and landlords were able to raise rents at will.

Fast forward to today, and you see that the market is transitioning once again. While the market for single family rental homes and condos remains strong, with just a 3.6% vacancy rate in the second quarter, apartment vacancies in the Denver Metro Area have now increased for six consecutive quarters, rising to nearly 10%.

It appears that the first-time buyer tax credit and low interest rates have been pulling many longtime apartment renters into the housing market.

I believe this is a short-term condition, personally, because one significant factor these days is that new apartment construction has all but disappeared from the landscape. New apartment units are not coming online, and most residential builders have either declared bankruptcy or suspended operations in the face of lower demand for "retail" product, more difficulty with financing and an overall decline in profit margins as consumers stress "value" over "luxury".

As long as the population continues to grow, the rental market will stabilize and landlords will be okay. The "big picture" fundamentals for both private and institutional landlords remain in place, but the fact remains, in the short term, some landlords will feel the pinch of the economy, just like everyone else.