Watching 30-year fixed-rate loans hovering between 4 percent and 5 percent and tax credits galore for first-time buyers, one might think it’s a good time to be in the market to buy a house.
But as the recession grinds on, statistics show buyers haven’t yet made a significant return to the housing market.
“With credit tightening, there are a lot of people who are not able to secure financing,” says Vicki Fullerton, chairwoman of Houston Association of Realtors. “They have either lost money in the stock market or are afraid of losing their job. Some others are just not willing to commit right now to applying for a mortgage loan.”
Increasingly, families are opting to lease until the recessionary clouds blow over. According to HAR’s recent study of Houston’s residential real estate market, demand for all rental properties has been on a steady rise. In Houston, single-family home leases are up more than 4 percent on a year-over-year basis, while leases for townhomes and condominiums are up more than 26 percent.
“We continue to see the leasing markets strong,” Fullerton says. “Until people’s confidence levels are back up and they can get back on their feet, rentals will remain in demand.”
Home leases popular
Demand in single-family home leasing leads the way, which is no surprise to Fullerton.
“It gets them close to what they really want, which is family ownership of a single-family home,” Fullerton says. “If they can only lease a piece of property in a school district where a child can get a good education, they are more inclined to do so.”
Still a rare occurrence even in this economy, some tenants are finding themselves back in the market after banks foreclose on landlords’ properties.
Eric Bradley, a Realtor at Houston-based In the Loop Properties, says the story he has heard from prospective tenants coming in to his office more and more has been one of involuntary entry into the leasing market.
“We are hearing from the other side,” Bradley says. “From people who were leasing because they have been forced out by owners who couldn’t pay their mortgage.”
Business has been steady at In the Loop, Bradley says. The summer months are their busy season and even in a sour economy, homes are still leasing.
“This last month has been insanely busy,” Bradley says.
Demand for rental homes may be up, but Etan Mirwis, president of property management firm Rockwell Management, says demand for apartments has yet to rise, despite heavy competition between new construction and existing complexes.
While difficulty obtaining financing and an uncertain job market have sent potential homeowners into the single-family rental market, apartments have remained flat compared to last year, says Mirwis.
“If anything, Class A properties leasing has gone down,” Mirwis says. “A lot of the new Class A properties are under pressure from their bridge lenders to lease up their properties.”
But in the current climate that is difficult to do, he says. What’s more, due to triggers in their loans, some property owners must meet certain occupancy rates by a pre-set amount of time or the loan may be called. That has caused some new Class A complexes in Midtown, the Medical Center and other Inner-Loop neighborhoods to offer large concessions to potential tenants to get them in often in the form of several months free rent, Mirwis says.
“In the last 60 to 90 days, a lot of new complexes that have not offered significant specials are doing so,” Mirwis says.
Although Rockwell’s properties have not fallen under these occupancy requirements, Mirwis says he has reduced rates at some locations for the first time ever to compete with other complexes’ offerings.
Mirwis says he hasn’t yet seen an increase in demand for Rockwell’s Class B and Class C properties either, but as single-family home sales continue to slump, this is the category he suspects will have a rise in occupancy as a result.
“That’s because those once long-term renters were expected to become homeowners,” Mirwis says. “But if the faucet is being turned off, they will look for affordable, well-maintained apartment complexes.”
And so far, that faucet appears to remain closed off. According to the HAR report, single-family home sales continue to slide. In March 2009, single-family home sales were 4,355, down 13.4 percent from the same time last year and represented the 19th consecutive monthly drop. At an average sales price of $178,477, single-family home prices have slipped 5.5 percent over the same period as well.
Mirwis says within the next two to three years, well-maintained apartment properties within the Class B and C range will see an increase in demand from prospective renters. Those renters will also stay much longer.
“We are seeing fewer people move out than in the past,” Mirwis says. “Turnover for me has been down 10 percent.”
Fullerton says she is optimistic that conditions in the economy will right themselves and aspiring home buyers will return to the market. But that won’t happen until people feel comfortable with their job security, says Fullerton.
Until then, Fullerton says, “We will see a continual increase in people jumping into the leasing market.”
Renting vs. buying Cost comparison for the Houston Area
Low cost Medium cost High cost
$710 $810 $954
Monthly rental costs
The comparison of ownership and rental costs uses calculations based on 75 percent of the median house price, based on data from the Census Bureau’s American Community Survey, for ownership costs. Low-, middle- and high-cost scenarios assume 6 percent, 7 percent and 8 percent 30-year fixed-rate mortgages, respectively. Rental costs are Fiscal Year 2008 fair market rents for two- and three-bedroom units as determined by the Department of Housing and Urban Development. Calculations for ownership costs of low-, medium- and high-cost homes assume alternative property tax rates of 0.75 percent, 1 percent and 1.5 percent, respectively, and also assume combined maintenance and insurance costs of 0.75 percent, 1 percent and 1.5 percent of the sales price, respectively.
Source: Center for Economic and Policy Research, May 2008