Just as the number of apartment vacancies reached multi-decade highs, the number of homebuyers who are about to need apartments to rent will skyrocket.
Reis, a New York real estate research firm, says apartment vacancies hit a 30-year high in the fourth quarter of 2009. Vacancy rates hit 8%, the highest level since Reis started tracking 79 U.S. real estate markets in 1980.
To keep tenants, landlords will do anything: lower the rent, shampoo your carpet, paint the walls, give you a Starbucks gift card, or pay for membership at the local fitness center.
The worst apartment markets last quarter were Tucson, Arizona; Charlotte, North Carolina; and Lexington, Kentucky.
Making matters worse, 120,000 new units hit the market last year. Many of those were failed condo projects that were converted to rentals. Reis said it’s the biggest supply boost since 2003.
Yet will soon change. On January 12, 2010, CNBC reported that the anticipated reset of thousands of option adjustable-rate mortgages-where both interest and principal payments rise sharply-is already leaving many homeowners struggling to keep a roof over their head.
“It’s going to kill off housing,” warns Patrick Pulatie, CEO of Loan Fraud Investigations, a predatory lending audit firm. “We have close to 500,000 option ARM payments going higher in California in the next couple of years. The impact of the higher payments will be devastating for homeowners who are having financial problems.”
Apartments vacancies may be high now, but sooner or later, it looks like the demand for rental units will have to rise, even as the supply falls over the next couple of years.
While the number of foreclosures has slowed somewhat, it could reach 4 million in the US in 2010 according to RealtyTrac. Numbers like that, says one analyst, mean housing needs a major financial overhaul. It also means millions of families will be needing rental units.
“We need to have these option ARM loans modified and help homeowners pay them off,” says Alayon. “People who say ‘don’t help my neighbor because I made my payments’ are missing the point. Missed mortgage payments mean foreclosures and falling home values. This affects us all.”
And with rent now covering mortgages costs, this is the time to start buying distressed apartment buildings or to own more. If you find one in trouble, you might be able to swing a great deal.