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April 09, 2007
The Rental Market Tug-of-War
There are two schools of thought on what will happen to apartment rents now that the housing market is slowing. The University of Southern California's Lusk Center for Real Estate came out with a report last week predicting that rents will pick up steam. So many people buying homes kept a lid on rents in recent years. That's beginning to change. The USC researchers predict that rents in Los Angeles, for example, will climb 5% this year from the citywide average of $1,470 a month. Afterall, occupancy rates are a healthy 96%. They are predicting that, even though some 6,000 new units are under construction, including a lot of projects near public transporation lines. Good news for commuters!
The other theory goes like this: Cornerstone Real Estate Advisers, a research outfit based in Stamford, CT notes that a lot of apartments have been taken off the rental market in recent years because it was so much more lucrative to sell them as condos. Then trend may now be going the other way. Projects begun as condos will be switched to rental units--holding down rents. Indeed some REITs that focus on apartments have said as much, including Equity Residential, the nation's largest apartment owner. Time to invest in rental property? May be, maybe not.
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Both will occur but there won't be enough reversions to impact the market since these areas are either tight, or rents are low enough there is not a great incentive to do so. Occupancy above 95% is a signal to raise them. Rents will rise.
Posted by: Lord at April 10, 2007 01:32 PM