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--Landlords/Tenants Cheer Longer Leases
--Houston Rents See Hurricane Impact
By Vicki Schmelzer
     NEW YORK (MNI) - Rental prices in the U.S. were mixed in October and early
November, according to residential leasing and property managers interviewed by
Market News International for the latest REALITY CHECK. 
     Rents are a sizable part of the monthly CPI report, due out Nov. 15,
accounting for nearly 8% of the total - more than the closely-watched energy
component. 
     ABODO's National Apartment Report, released earlier this month, found that
the median rent for a one-bedroom apartment in November rose by $12 to $1,032.
This was a new high for 2017 and the largest month-on-month increase in the year
thus far. The rental rise represents a 1.37% increase year-to-date.  
     For their calculation, ABODO uses over one million ABODO listings across
the United States. 
     Sam Radbil, communication manager at apartment listing site ABODO, said
November findings were "a bit of a surprise." He had expected to see rents
leveling off somewhat into year-end. 
     "A huge factor in the change of rent price is always the price of
purchasing a home; A lot of people who we have talked to in markets nationwide
say that they are being pushed out of the buyers' market by the cost of homes,"
he said. 
     If house prices keep rising, the push for higher rents may continue, he
said. 
     However, "we do not anticipate huge increases in rent as we saw in 2016,"
Radbil said.
     Heading into 2018, he looked for U.S. rent prices to remain stable and to
"potentially decrease long-term." 
     "Inventory is rising, we're seeing new developments in big cities go up at
a record rate and supply is on the way," Radbil said.
     At some point however, supply will meet demand and prices would then likely
decrease, he said.
     "When that happens, it will no longer be a landlord's market, and renters
will start to feel the relief in price and in concessions offered by landlords,"
Radbil said.
     Overall, the rental market remained healthy in October. Rental property
managers did not see that changing greatly in coming months given the strength
of the U.S. and local economies and low U.S. unemployment. 
     "We're kind of ending the hottest market we've had in Minnesota since
2008," said Emmett Lynch, Sales Director at Renters Warehouse in the
Minneapolis-St. Paul area.
     Rental property managers in the region have had success with their
properties. "So, many people have stuck with it, because it is working so well,"
he said. 
     Average days on market have gone from 13-14 days over the summer to 15-16
days, but this is typical given that most renters prefer to move over the summer
so as to avoid Minnesota winters and to be able to have children start school in
the fall. 
     At the same time, rents have been nudging higher and if a tenant moves, or
it is renewal time, landlords feel comfortable raising rates by $50 to $100, for
say a one-bedroom/two-bedroom condo/townhome that would cost $1,300 before the
increase, Lynch said.
     "Once we can't get qualified tenants that are willing to pay that extra
$100, we'll probably have to make an adjustment, but I don't see any problem in
the foreseeable future," he said.  
     Rents have been fairly flat in the Hampton Roads area in the past year,
said Russell McMackins, President of Renters Warehouse in Hampton Roads, VA. His
focus is mainly on single family homes in the Hampton Roads area, which includes
the cities of Newport News, Hampton, Norfolk, Virginia Beach and Chesapeake.
     "They're not declining, but if they're going up, it's going up at a smaller
rate than would normally be expected," he said. 
     The "main economic driver" for the rental property market at Hampton Roads
has been, and still is, the U.S. Department of Defense, McMackins said. 
(The Hampton Roads Chamber notes that "The Hampton Roads regional economy has
become increasingly dependent upon defense spending over the past decade and
Department of Defense (DOD) spending accounts for 45.6% of all regional economic
activity.")
     At this time of year, Hampton Roads typically sees inventory build
modestly, only to see rental demand pick up in November and December, "because
of the DOD budgets that are getting signed and people are starting to move
again," he said. 
     While the Port of Hampton Roads is growing, "the actual number of workers
is relatively stable," which is why the U.S. military budget is still the
greater determinant for the rental market, McMackins said. 
     With a new administration, the U.S. economy picking up and U.S.
unemployment low, "even in our area here specifically, we can see the light of
the DOD expenditures starting to increase," he said. 
     Mix in still historically low mortgage rates and, "what we are seeing with
all that is a lot of new landlords," McMackins said. 
     Rental leases are being extended beyond 12-months, with 15-month and
18-month leases becoming less unusual. 
     For tenants moving during winter, this means a summer move when the lease
ends, as well as locking in the rental cost, he said. 
     For the landlord, "you want them having longer term tenants because they
like it there, which means they pay on time and it's a better performing asset
for the owner," McMackins said. 
     On locking in longer leases, "There is some appeal there, both on the
landlord side and on the tenant side, because you know what you are going to be
paying a year from now or two years from now," said Lisa Simmons, president of
Beacon Management Services in Atlanta.
     Rental rates in the Atlanta area have "topped out" at $2.00 to $2.50 per
square foot for the Class A properties, with "supply outpacing demand," she
said. 
     "There has just been so many projects delivering at the same time and then
we still have a few more coming on-line in 2018," she said.  
     Even with a "healthy" economy and low unemployment in the area, there is a
limit to the number of people that "can fill up these buildings," Simmons said. 
     Because of the supply/demand skew, it is not uncommon for landlords to
offer up to two-months of free rent as concession to attract renters, Simmons
said. 
     What could be a game changer for the local property market? Atlanta is
viewed as a top contender to become Amazon's second headquarter site. 
     "I think it would be the biggest thing since the 1996 Olympics," Simmons
said. 
     The question on everyone's mind is "What is Amazon going to do? Where are
they going to land? And if they did pick Atlanta, where would they land in
Atlanta?" she said. 
     If Atlanta is chosen, "Whoever is close by to that headquarters" will
benefit, Simmons said, "It would just be an incredible boon to our property
values." 
     Looking westward, Houston area rents edged higher and properties rented
faster in October/early November, albeit selectively depending upon dwelling
type.
     "Since the hurricane happened, we've seen stuff that was sitting for
several months just immediately rent," said Rich Drake, CEO at Renters Warehouse
in Houston. His focus is on single family homes and townhouses in the area. 
     Part of the demand for housing is being driven by those whose homes were
damaged or destroyed by the hurricanes and part is being driven by those coming
in to work in construction and other remediation, he said. 
     "There is less inventory and more demand," Drake said, "These hurricanes
don't cause 90 days worth of reconstruction - they cause three years and five
years of reconstruction."
     And crude oil's recovery back above $57 per barrel recently could lead to
additional hiring in the oil industry, which means more workers moving back to
the area and in need of housing.
     "When oil is where it is now, and it's a lag, it'll take a while for that
to pick up, but if it stays up here for a little while, people will pick up the
hiring," Drake said.    
     Average days on market for rentals in the Houston area "have gone down
quite a bit," he said. 
     "The leasing agents are so busy they can't get back to perspective tenants
- everyone is getting inundated with requests for showings," Drake said. 
     In terms of Houston apartment rents, the ABODO survey found that the median
price of a one-bedroom apartment fell by 2.9% in November. 
     "Our data shows that rents were rising all year until August, when Harvey
hit, and have been dropping ever since. We do anticipate that rent prices will
rise in Houston shortly," ABODO's Radbil said. 
     People, who had damage to their house or lost their home entirely, may
still be staying with friends and family, but will have to move out at some
point, he said.  
     "Both home prices and rents are expected to rise given the immediate
housing shortage," Radbil said. 
     Anyone whose house survived Hurricane Harvey is "now sitting on very
desirable real estate in the city," he said. 
     There are already "stories about out-of-state investors coming in and
swooping up the damaged properties to flip them," Radbil noted. 
     Editor's Note: Reality Check series reports on sentiment among business
people. They are intended to complement and anticipate economic data. 
--MNI New York Bureau; tel: +1 212-669-6438; email: vicki.schmelzer@marketnews.com
[TOPICS: MAURC$,M$U$$$,MX$$$$]

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