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Which Direction is the Rental Market Headed?

Over the past several months the rental market for single family homes in Sacramento has held up pretty good. Vacancy rates have stayed around 5% and rents have held steady. This is due to the loss of inventory due to foreclosures and plenty of replacement tenants many of whom had a foreclosure. This month we noted that the numbers of vacancies has been increasing and vacancy rates rising slightly. This may be due to the holidays as much as anything. But, we also have noted that investors are closing escrow on more foreclosures and putting them onto the rental market. This is increasing supply which in the long run will drive vacancy rates up and rents down. I do not expect rents to come down more than 10%. Those that choose not to lower rents may see extended vacancies. January 2009 will be an important month to tell which direction the market is going for the next quarter.

Posted by Robert Machado, CPM MPM Sacramento Area Property Manager and Property Management on 12/17/2008 04:08 PM

Comments (19)

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19 Comments on Which Direction is the Rental Market Headed?

DEC

The supply of rentals is definately up, and the supply of tenants seems to be down. I'm not sure how much of the latter is due to the holidays, and how much to the economy. I think people are finding it hard to make a living here, construction is down, businesses aer closing. January will tell.

BTW- we're a small town, about an hour and half drive North of Phoenix, AZ.

DEC

We are seeing the same thing. Hopefully Janauary will make up for the slows in December. Everyone should enjoy the holiday and then get back to business!

Robert - Just this week I made a mental note of increased rental sign activity on homes around the county. One of the things that baffles me is considering the number of vacant properties for sale (often foreclosures or bank owned properties), and the increased number of properties available for rent, where did all the people go, who once lived in these properties??? It's as if a space ship came down and warped them out of here!

DEC

Myrl, My history tells me to expect a busy January. December's lag normally is made up for in Janaury in our Sacramento Region. That is why I am not screaming that the sky is falling. A lot of people must be holed up with relatives for the time being, but that will get old really quick.

Anyway, I have not seen any flashing red lights in the sky yet, and only expect to see a few on Christmas Eve, but that guy is not taking passengers as far as I know.

Robert I agree that many of these foreclosed properties are reappearing as rental properties which as you rightly pointed out will increase supply and most likely bring down the rental rates. Yes for many reasons January will be a month to watch.

Thanks for stopping by my blog.

Property management trends much slower than sales trends, but January should see an uptick or we are headed for rent reductions.

DEC

Thanks Robert for sharing that with us. I feel as though the rental market (especially in Los Angeles) has increased dramitically. It seems as though everyone these days are going into rentals. The price of rental units have also increased since the market has had a downturn.

DEC

We are a little behind you here as our rentals are more full and rents are rising because of it. It is sad to see the foreclosure market has now caused long term renters more money because of the rising rents, but it is just a fact of life.

I suspect the same trend to start happening here with the rental market as more and more investors grab rental properties.

Congratulations on your 2nd anniversary in the rain and hope your 2009 is a profitable one.

DEC

Todd, The market has to be watched carefully as all the foreclosures have made the conditions quite different than the past. Go 2009!

JAN

Just out of curiosity, what are the numbers derived from? are they based on scientific data or are they more arbitrary?

thanks,

Sam

JAN

My 5% vacancy rate is derived from my company. The future trend is my opinion based on what I see happening in the marketplace. Thanks for asking!

Which way are they heading? Up, up, up, up, up, up, and up.

We've had more inventory due to owners choosing to rent vs. selling. Or simply because thier property didn't sell on the market. Business is great and we remain busy!

In Sacramento rents seem to be holding or dropping a bit. There is plenty of activity so the trend could change soon. There is no shortage of vacancies and people are losing their jobs, not a good sign.

JAN

In my current area it seems that the demand for rent has stayed stable even as housing has dropped. People actually are paying $600/ month to rent a home, no utilities included, when they could by a similiar condition home for under $100,000. Many times they could find a home cheaper yet many in the area are afriad of making a commitment in these "unstable" economic times. So instead of buying they rent.

Eric, you make a good point that people are worried about the future and do not want to commit to a new loan when the market may devalue. That is not good, but landlords may benefit.

JAN

Rents are up in the East Bay, alot from last year. It is taking longer to find someone, but it's been good for landlords who need to make their payment.

Terrylynn, That is good to hear. Sacramento has typically followed the SF Bay Area, lagging by several months. So, our rental market should be firming up!

FEB

Our Philadelphia market has seen overall rentals go down. With all the mortgage mess and rising prices it seems that most homeowners were trying to rent their places at a rate that was far superior than what the average market rent is. Overall people are sitting tight on where they are, unless relocating. Im in the rental market exclusively and just refer out my eventual buyers, and I have noticed a decrease in renters and price!

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