14 Sep RENTAL DECLINE IN HOTTEST U.S. MARKETS CONCERN EXPERTS AS TRENDS ARE REMINISCENT OF MIAMI’S CRASH LAST DECADE
September 14, 2018 – As is typical with any market cycle, there are many social and economic factors that trigger declines in the rental market. Most typically, as is the case now, a surplus of supply and a decrease in demand is sending normally booming rental markets into a slump across the country. The past few years have seen a steady increase in rentals; however, rents were up just 0.5 percent in July compared to as much as 5 percent in previous years. Many analysts cite Miami’s rental market crash in the late 2000’s as an example of what can happen when there is an overabundance of inventory.
The revived trend of consumers seeking new construction luxury apartments once again has triggered developers to bring back construction cranes in almost every major city, including Miami. As the properties then come online, which in the Downtown Miami area has amounted to almost 4,800 new units in the past four years alone, commercial landlords and local condo investors find themselves fighting for tenants.
One notable reason for the increase in demand in Miami is the millennial population. While millennials are indeed getting older and established professionally, the sale price of sought after metropolitan single-family homes is still widely out of reach when compared to most millennial incomes. A young family seeking a 3 bedroom 2 bath home in the highly coveted Miami neighborhoods of Morningside or Coral Gables start with prices over $500,000, which is well out of reach for most first time buyers.
As landlords and developers start recognizing these emerging trends, and find that competition to fill their properties with tenants at an all time high, their only choice is to offer more for less. Nationwide rents have dropped from double-digit gains to actual declines in just four years. This is also evident in the Miami rental market where it is taking longer to lease up even while developers are adding more and more incentives. Although a majority of these apartments were built amenity-rich as a way to justify the recent incline in rents, now that tenants have officially gained the upper hand developers are upping the ante by way of even more amenities, concessions and other discounts.
In Seattle, which has felt the steepest rental decline amongst the top 50 metropolitan markets, some developers are offering thousands of dollars in Visa gift cards, while others are giving away free parking (a value of $175/month), offering car rental credits and no money down leases, just to get people in the door. Other concessions include pandering to those living with man’s best friend. Buildings that once were strictly no pet residences are now are welcoming furry friends with open arms – and even building rooftop dog parks, dog-washing stations and VIP pet amenities.
While these scenarios paint less than a rosy picture for landlords, the average consumer stands to benefit. Beyond the fact that new renters are now able to enjoy all these perks at an even less cost, the long-term financial gain is also showing that now may be a good time to be a tenant. Analysts have shown that for the first time since 2010 it’s easier to build wealth over an eight-year period by renting a home and investing that money than the equity gain from buying. A study by Florida Atlantic University and Florida International University (Ross’ alma matter), the national rent-versus-buy index of 23 major cities has shown that the booming stock market is no match for high home prices and rising mortgage rates.
Whether a national real estate bubble is imminent or not, the fact remains that incomes in cities like Miami, Dallas, and Denver are greatly lagging behind the rising home prices and ever increasing borrowing costs. Just as with the family budget, when the money going out exceeds the money coming in, something is in need of correction.
- RENTAL APARTMENTS BECOMING AN ATTRACTIVE OPTION IN MIAMI
- ABUNDANCE OF INVENTORY MAKING IT UNIQUELY A BUYER’S MARKET
- SOUTH FLORIDA DEVELOPERS DELIVERING OVER-THE-TOP AMENITIES
- WHAT IS A PARKING SPACE AT YOUR CONDO WORTH TO YOU?