Jay Olson recently stood up in front of a room packed with several hundred property managers and landlords at a rental-housing conference in Seattle to tell them the good news.
After years of offering freebies and shaving rents to attract tenants, landlords finally are recovering from a downturn in the market, said Olson, a regional vice president at San Diego-based ConAm Management and also the president of the Washington Multifamily Housing Association.
It’s due to a combination of factors: a shortage of apartments, still-high home prices, a stumbling housing market that has many prospective buyers taking a wait-and-see approach and the Seattle-area’s strong job growth.
The message for apartment owners at the conference? If you haven’t raised your rent already, you should.
“Nearly all the economic factors are in our favor,” Olson said. “This doesn’t happen every year.”
Many apartment owners already have raised rents.
Last year, the average rent in King and Snohomish counties for all apartments rose 8.6 percent, reaching $1,012 in the fourth quarter of 2007, according to the most recent report from Seattle-based Apartment Insights Washington, which surveys 150,000 apartment units on a quarterly basis. Over the past two years, since the first quarter of 2005, rents have climbed 16.7 percent.
Vacancy rates averaged 4.4 percent across Snohomish and King counties, also an indication of a tight rental market.
At the high end, the average rent in Kirkland for all units was $1,515 a month, in downtown Bellevue it was $1,359 and in downtown Seattle, $1,357.
The most-affordable areas included Everett, where the average apartment rent was $713 a month, Des Moines at $777 a month and Burien at $793.
A large chunk of the rent increases happened in the third quarter of last year as the housing market took a turn for the worst. Buyers, hesitant to jump into a house, instead opted to rent. What’s also helping the market is strong job growth.
Rob Kellum, chief operating officer for Suhrco Residential Properties, said some of the 16,000 units the company manages from Bellingham to Olympia have seen rent increases as high as 20 percent.
“Some of that is to make up for the rents we lowered in 2003 and 2004,” Kellum said.
While 2008 is also shaping up to be a good year for landlords, there’s an interesting “crosscurrent” of events that could affect the market, said Tom Cain, a partner in Apartment Insights Washington.
For one, some of the 7,000 apartment units in King, Snohomish and Pierce counties that have been converted into condos in 2007 are turning back into rentals because of the slowdown in the housing market.
Also, after a dry spell of apartment construction, several projects are under way and will add to the supply over the coming years. There are 5,474 new units under construction right now, according to Apartment Insights.
“I imagine there will be condos that don’t sell that will be rented,” Cain said.
The reborn renter
Of course, the strong rental market makes it a bad time to be a tenant.
Deals are hard to find and landlords aren’t making any concessions.
Janelle Morgan, 36, wanted to move out of her Bothell apartment after her landlord increased her and her roommate’s monthly rent $200 to $1,050. But looking around, she realized that it will be hard to find a more-affordable place that she would want to live in.
“They’re expensive and they’re not nice,” she said.
Instead of leasing an expensive apartment, prospective renter Lee Rhodes decided to take advantage of the housing market’s woes.
He placed an ad offering to rent a vacant house that has been sitting on the market with no potential buyers in sight.
The advantage to him: He can probably get a better deal because owners are eating the cost of their mortgage anyway.
Willing to move
Of course, that means he has to be willing to move as soon as the house is sold, which doesn’t bother Rhodes, a helicopter pilot who recently moved to the area.
“I was thinking of buying, but I was feeling that the market might move another leg down,” he said. “I’m willing to wait for six to 12 months to see what the market does before I jump in and buy.”
In addition to prospective buyers who are waiting it out, there also is the “reborn renter,” a term used to describe people who have lost their house to foreclosure and are now back on the rental market.
“Those are the people we lost over the last five years who bought a home, they went out and got a subprime loan and now they’re losing their homes,” Kellum said, adding they’re expecting to see more of that this year.
Olson of the Washington Multifamily Housing Association has these suggestions for renters: Be wary of landlords offering deep discounts because in this environment, it may be a signal that something’s wrong with the place. And do your homework.
“It’s going to be expensive so get what you want and shop around,” he said. “Find a good location, get closer to work and save on gas.”
To rent or to sell?
Real-estate investors also are trying to figure out their next move. With housing appreciation in the Seattle-area at its lowest rate in a decade and a deep supply of single-family homes on the market, many are choosing to hold onto their properties.
One of them is real-estate investor Olya Lapina, with three properties in the Seattle area, who recently started offering a lease-to-buy option on her homes.
Her reasoning is this: because of the subprime mortgage meltdown, many prospective first-time homebuyers are leery of getting into a home right now and may not qualify for a loan anyway.
Her strategy is to offer them a way to eventually buy, while taking advantage of the strong rental market to get them in the door.
“It’s become more popular in the current situation,” she said.
Lapina charges a set rent and then takes money out each month to put toward the tenants’ down payment. She’s attracting renters who eventually want to buy a home and are tired of landlords increasing their rents each month. The selling price of the home is also set.
William Kemper, a Seattle property owner, is taking a different approach.
He’s decided to sit tight for the first part of the year. Last summer he saw a huge amount of interest from tenants looking for rentals, but now he said he’s seen a bit of a slowdown.
Kemper is looking for a tenant to rent a basement apartment on Capitol Hill for $1,300 a month. Kemper had some calls and shown it twice, but nothing like the interest when he rented it briefly for the first time in October.
Still, “I’m not anticipating any trouble renting it,” said Kemper, who isn’t planning a rent increase anytime soon.
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