Home Rentals Hot

Date: May. 27th, 2010
Contact: John Rebchook Phone: 303-945-6865

Vacancies in rental condos, single-family homes, and other small properties across metro Denver fell to a two-year low of 3.1 percent during 2010’s first quarter. The vacancy rate was 3.6 percent during the first quarter of 2009. The last time the metro-wide vacancy rate fell below 3.1 percent was during 2008’s first quarter, when vacancies dropped to 2.7 percent.

According to a report released Thursday by the Colorado Department of Local Affairs’ Division of Housing, the number of days on the market for single-family rentals and similar properties fell from 53 days during the first quarter of 2009 to 45 days in this year’s the first quarter Properties were also on the market for fewer days during the first quarter of this year as compared to the fourth quarter of last year when properties were on the market for almost 54 days.

“Living in a single-family home continues to be popular, but purchasing one isn’t an option for as many households in the current climate,” said Gordon Von Stroh, professor of business at the University of Denver, and the report’s author. “So, more people are looking to rent, and that has brought down the vacancy rates quite a bit from their peaks above 9 percent that we saw back in 2005.”

The metro-wide fall in vacancies in single-family rentals and similar properties was led by falling vacancies in Adams County and Douglas County where, year over year, vacancy rates fell by more than once percentage point to 3.7 percent and 0.9 percent, respectively. Vacancy rates also fell in Arapahoe and Denver Counties. Jefferson County and Boulder/Broomfield area reported slight increases.

Vacancy rates for all counties surveyed were: Adams, 3.7 percent; Arapahoe, 2.6 percent; Boulder/Broomfield, 2.3 percent; Denver, 3.0 percent; Douglas, 0.9 percent; and Jefferson, 3.9 percent.

Average rents climbed as vacancies tightened.

The average rent for single-family and similar properties rose to $1,035.56 during the first quarter, rising from 2009’s first quarter rate of $1,004.44. 2009’s first-quarter average rent is the highest average rent yet recorded for the first quarter.

“The fact that average rents continue to rise shows that renter demand for these properties remains relatively high in spite of a soft job market,” said Ryan McMaken, a spokesperson for the Colorado Division of housing. “Owners can apparently manage to raise rents a little, but uncertainty about wages and job security for renters will put some downward pressure on rents also.”

“Things have really tightened up since 2005,” when the rental vacancy stood at 9.5 percent, McMaken said. “Of course, back then part of what was going on was the frenzy buying of single-family homes, when you had easy credit and if you are renting, you are just throwing your money away. Now, people are much more prudent. In many cases, people have decided they are better off renting at this point of time,” he said. Or they don’t have the credit and job security to buy a home.

While rents are up, but landlords may not be able to continue to raise them. Average rents for all counties were: Adams, $1,099.39; Arapahoe, $1,032.89; Boulder/Broomfield, $1,684.57; Denver, $984.52; Douglas, $1,367.76; and Jefferson, $969.50.

Rents may hit ceiling

“The demand is high enough now to raise rents,” McMaken said. “But given that a lot of people are not feeling fabulous about their job prospects, the economy may put some downward pressure on rate increases.”

Bob Alldredge, of Jericho Properties, suspects that many of the new landlords are still taking small losses on their properties, despite the increases in rents.

“The majority of the new accounts we are receiving, people are renting because they can’t sell them,” Alldredge said. “I’m guessing that a lot of them are experiencing a small negative cash flow, which is better than the alternative – a short sale or foreclosure.”

A lot of the accidental landlords want to base their rental income on the size of their mortgages, he said.

“Unfortunately, that’s not how it works,” Alldredge said. “We have to explain to them that their dollar position in the house makes no difference. It is the market that sets the price that they can rent the house.”

Rental houses are bargains

Susan Melton, of Assured Management, said that houses still remain a bargain, compared with renting apartments. She noted that apartments, overall, rent for about $1.00 per square foot, while homes in the Denver area rent for an overall price of 82 cents per square foot.

“Homes really are a bargain on a per-square-foot basis,” Melton said.

Alldredge, however, noted that most people who rent houses are not also looking to rent traditional apartments. Von Stroh has noted that many people who lose their single-family homes in foreclosure want to rent other houses in the same neighborhood, so their children don’t have to change schools.

Even though the supply of rental homes has clearly risen – although the exact amount is difficult to estimate – the demand is even stronger, driving down the vacancy rates, Alldredge said.

But he is not sure that trend will continue in the near-term.

Tax-credit impact not felt yet

“We have seen a lot of people who have moved out of rental houses – or who are planning to move out – because of the housing tax credits, which required people to put the home under contract by the end of April and close on the home by the end of June,” Alldredge said. “Those numbers weren’t reflected during the first quarter, but they will be a factor later in the year. That will result in more vacancies in May and June. But we will still have the pressure that that there is more demand than properties on the market. While no one has a crystal ball, I think we might see some flattening in the vacancy rates.”

The Colorado Statewide Vacancy and Rent Study is released each quarter by the Colorado Division of Housing. The report is available online at the Division of Housing Web site.