Investors are back in the housing markets, driven by affordable prices, abundant foreclosures, low interest rates and now… rising rents.
Healthier rents are completing the financial picture for investors who want to buy, fix up and rent out residential properties. Rents rose nationally in the first quarter for the first time in five quarters, according to Reis. At the same time, the vacancy rate stayed flat at 8 percent.
Reis, Inc tracks vacancies and rents in the top 79 U.S. markets, and rents rose in 60 of them, led by Miami, Seattle and New York-all cities that have experienced big rental declines in the past year.
Nationally, effective rents, which include concessions such as one month of free rent, rose 0.3% during the quarter compared with a 0.7% decline in the fourth quarter of last year and a 1.1% drop in the first quarter of 2009. Vacancies are tied to unemployment, because many would-be renters move in with family members or double up during a downturn.
A Move, Inc. survey released earlier this month found that interest in real estate as an investment has more than tripled in the past year with consumers as 17.2 percent of all survey respondents plan to purchase a home in the near future as an investment property compared to just 5.6 percent a year ago. Nearly half of these potential home buyers plan to own the property for six or more years, 16 percent expect to hold the property for between two and five years, no doubt to rent it out.
Another measure of investor presence in the marketplace is cash purchases. As first-buyers competing against investors in foreclosure auctions have learned the hard way, a lot of investors like to pay cash. The Move survey found that just over ten percent of those planning to purchase investment property in the near future expect to pay 100 percent with cash. Even more telling was this factoid from today’s Existing Home Sales release: all-cash sales in February and March reached 27 percent of all home sales. That’s a huge swing from the past year, when 92 percent of buyers financed their home purchase.
Behind rising rents is the fact that many potential buyers still can’t scrape together a down payment or qualify for affordable monthly payments despite the decline in property prices over the past three years, interest rates below 5 percent, distress sale bargains and a tax credit to top it off.