Wednesday, November 15, 2006

As Real Estate Slows Rentals Heat Up

Consumers only put up with so much. There comes a time when Joe Seattle the Real Estate Buyer says, "$300,000 for a Studio Condo is too much." "What about an interest only loan, or a Pay Option ARM?" says the Jim Desperate the REALTOR or Jane Needy the Loan Officer, "Then your payment would only be around $1700 a month."

But its too late, this buyer is out of the market. He's going to rent instead. And who can blame him? He can probably go rent that same Condo for $1000 - $1500 a month. So Joe Seattle signs a 6 month lease on a charming Ballard Condo. Bill Tacoma, Jimmy Auburn, Fred Renton, Frazzled Homebuyer, and 10,000 of their friends do the same. And so goes the transition from real estate boom to rental boom.

The Puget Sound Business Journal begins their article Apartments are where the action is - for now by saying, "Rents are up. Vacancies are down. In short its good to be a landlord again." The article goes onto explain that a slowing real estate market means a higher demand for renting; and a higher demand for renting means higher rents.

After mirroring the economies decline for four years, the fall 2004 vacancy rate for the Puget Sound region (King, Pierce, Snohomish, Kitsap, and Thurston Counties) was at 7.4 percent, rents were either flat or falling, and landlords were showering tenants with incentives. Ever since the pendulum has been swinging in favor of landlords. (Broberg, 2006, Para. 7-8)
This increase in renters has turned investor's eyes toward apartment complexes. Micheal Derr, managing director for Trammell Crow Residential Real Estate in Seattle says that people are interested in buying complexes before they are even built (as quoted by Broberg, 2006, Para. 6). This is quite a turn around from 2-4 years ago, when it seemed like every other apartment complex was being converted into a condo.

Despite this rental boom, it is important to remember that everything is cyclical. The interest rates will eventually drop and those inexpensive apartments will eventually be comparable to a mortgage on a condo. Right now though REALTORS are out and Landlords are in. However, like bell bottom pants and 80's style shawls, everything comes back in style again.

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