Housing slump fails to spark soaring rents

The Baltimore Sun

Good news, apartment hunters: The slump in home sales and rise in foreclosures haven't meant skyrocketing rents. Many landlords are increasing monthly rental costs more slowly than usual.

Average rents rose 2 percent in the Baltimore metro area from a year ago, to about $1,090, according to M/PF YieldStar, which tracks the multifamily housing industry.

Annual increases are typically at least twice as big, says Greg Willett, the company's vice president of research.

Why the slowdown? The housing slump, Willett says. Yes, the trend that apartment owners thought would work to their advantage.

Problem is, a number of people who would like to sell their houses, rowhomes or condos are having no luck and renting them out instead. Some are investors; some are regular homeowners who had to move. Their properties add to tenants' choices, creating a sort of "shadow market" and keeping rents from rising at a normal clip, even though the ranks of renters have grown.

"The slowdown in the economy is part of it, but the job numbers don't look that bad for Baltimore - it's more [the] competition from the 'shadow market' products," Willett says.

Rent growth hasn't been so pinched in downtown Baltimore, though. Rents are up 4 percent to about $1,770, Willett says. This comes despite competition not only from an active shadow market but also five new apartment complexes that opened within a mile of Pratt and Light streets since last summer.

"Demand for downtown housing is not slowing down," says Bob Aydukovic, vice president of economic development for the Downtown Partnership of Baltimore. "All else being equal, ... we're going to be coming to a point where there are not a lot of available units out there, period. There is virtually nothing under construction, save for a few hundred units, that's going to deliver in 2009 and 2010."

Downtown Partnership, which surveyed large apartment buildings last month, said occupancy rates downtown have risen to 94 percent. M/PF YieldStar said its research shows a downward trend to about 88 percent occupancy, which it blames on that 4 percent increase in rent. (Downtown Partnership's survey excludes the newer complexes that are in their initial lease-up, while M/PF YieldStar looks at the broader apartment market.)

"Some of that product is just being overpriced," Willett says.

By the way, M/PF YieldStar tracks how rents have changed among the same properties, so its numbers aren't being skewed by pricier newcomers.

So what about the shadow market? M/PF YieldStar, looking at metro areas across the country, has found that those rents tend to be on par with top-tier apartments. Willett says there's no way that covers mortgage payments for landlords who bought in the last few years, when housing prices eclipsed rents.

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