Monday, February 20, 2012

Rental Demand Goes Up, Rental Prices Go Down?

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Rental Demand Goes Up, Rental Prices Go Down?

February 13, 2012 RSS Feed Print

In the space of just a few years, the nation's foreclosure crisis has chewed up millions of homeowners and spat them back into the housing market as renters.

You would think a huge inflow of rental demand and relatively limited supply—vacancy rates are at their lowest levels in 10 years—would cause rents to spike dramatically, but according to a recent study by Chicago-based risk management information firm TransUnion, that's not the case. The national average for rent has actually dropped slightly, from about $831 in the fourth quarter of 2010 to $820 in 2011.

"On average [rents] went down a little bit, which is sort of counterintuitive based on everything that's been happening," says Steve Roe, vice president of sales for TransUnion's rental screening business unit.

But dig a little deeper and a more logical picture comes into focus. For one, the unemployment rate is still high, and landlords recognize that many Americans simply can't shoulder a rent increase at this point, regardless of how much demand there is for rental housing.

"You look at wage growth and job growth and [landlords] are taking advantage of that where they can, but in many other cases it's a matter of 'We just can't because our tenant base can't afford it,'" Roe says.

Unsurprisingly, location and economic climate has a lot to do with it. While the overall national rent average has gone down, some regions, such as the two coasts, have seen modest upticks. Denver saw an average rent increase of more than 10 percent, according to the survey.

"It depends regionally," Roe says. "[The increases] are in line with what's expected, but we're still not at the pre-crash level, so there's room to grow. The question is: Is the economic strength there to support [higher rents] going forward?"

But while landlords might not be raising rents outright, they are employing other techniques to improve their bottom lines. For one, they are less likely to offer move-in specials or discounts, Roe says, and the deposits landlords have been requiring are on the rise. They're also pickier about their tenants' credit record.

"Property managers' rental volume is sufficient enough that they can afford to be more selective in offering premium terms," said Mike Mauseth, president of TransUnion Rental Screening Solutions, in a release.

That means while renters might not be paying more in rent every month, upfront costs are rising, and the financial hoops landlords require prospective tenants to jump through are getting tougher.

Those dynamics could all change, however, if plans to convert thousands of government-owned properties into rentals gain traction.

"Potentially, depending on what happens, it could be a big wave that comes in a knocks the boat over," Roe says. "It has the potential to affect things drastically."

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