Apartment rents may be cooling off

Landlords are finding it harder to boost monthly rents as more apartment complexes open and as the housing market starts to rebound.

By Charley Blaine Apr 3, 2013 4:45PM
House for rent in the middle of winter © David Joel, PhotographerMany would-be home buyers have held back in recent years, waiting for the housing market to bottom.

That's why landlords have been able to raise rents easily, 9% in recent years and often larger increases in hot markets. In fact, investing in apartments was very lucrative in 2010, 2011 and 2012.

But that may be slowing, according to The Wall Street Journal. Rent increases are starting to cool down as apartment developers put new units on the market.

At the same time, builders are starting to boost the supply of new homes for sale around the country, as the housing market is showing more signs of strength.

And people looking for homes are doing the math, of deciding if it's cheaper to buy or rent.
For buyers, buying vs. renting was an easy answer when property values were falling: No.

It's a more complex question if buyers think prices will move higher. If you think the market is stable or rising, then you can think of the question on a tax-adjusted basis, which brings the mortgage deduction and property taxes to bear.

That is, the cost of owning a home -- after deductions for mortgage and interest and property taxes -- may, in fact, be cheaper than renting, and owning offers the opportunity of property appreciation. Renting offers only shelter. 

Right now, stock-market investors think renting may be losing its cachet. 

As The Journal noted, real estate investment trusts that invest in apartments produced the lowest total returns (price plus dividends) in the first quarter of any sector of REITS.

Overall, the group had a 0.11% return, according to the National Association of Real Estate Investment Trusts. That compares with 18.6% for REITs that concentrate on mixed industrial-office properties, or 15.5% for timber-oriented REITS or 17.4% for REITs that invest in manufactured homes.

It also means that the stock prices for apartment REITs were mediocre performers at best during the quarter.

In fact, Essex Property (ESS), a big West-Coast apartment developer, gained 3.4% in the quarter before dividends. BRE Properties (BRE), another West-Coast-oriented REIT, fell 4.2%. Avalon Bay Communities (AVB), one of the largest apartment REITS, was down 6.6%.

The FTSE NAREIT All REITS Index, the broadest index of the U.S. REIT market, delivered a 9.11% total return in the first quarter. The FTSE NAREIT All-Equity REITs Index delivered a total return of 8.10%. That compares with the 11.9% return for the Dow Jones Industrial Average Total Return Index ($DJITR) and a 10.6% total return for the S&P 500.

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22Comments
Apr 3, 2013 6:43PM
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Trust me. As a homeowner three times, I know that it is NOT cheaper to own than to rent. There are a lot of hidden costs of homeownership, which the author of this article has conveniently chosen to omit. This is very misleading to first-time home buyers. Before you buy into the hype you read, you had better do your homework before even considering taking on buying a home.
Apr 3, 2013 7:52PM
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The decision to rent or own very much depends on one's individual situation. The Real Estate Industry wraps itself in the flag, motherhood, and apple pie. Why, if you don't buy, you're undermining the country and throwing away your money according to them.
Apr 4, 2013 10:06AM
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It really does not matter which is cheaper, the banks are the ones who will always win...
Apr 3, 2013 8:01PM
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I agree with Jeff there cause that's an old adage that is no longer true. It is not cheaper to buy period.
Apr 4, 2013 5:18AM
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Renting offers flexibility. You lose your job and have to find a cheaper place you don't have to sell an apartment. i bought 2 houses during the boom and sold both during the bust. one in penn and one in colorado. buying was easy. selling was the hard part to recoop your investment, plus all the unexpected repair costs. water is colorado is like gold. i know people with houses paying 100.00 to 150.00  a month for water alone. green grass isn't cheap. also heating a bigger place and air conditioning also.
Apr 3, 2013 11:23PM
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While it's true, as other posters are writing, that it's not cheaper to buy instead of renting, if you buy you do have something you own and can re-sell at some point.  Rent just goes out and you have nothing at the end of years of paying it.  Also as a renter you have no control or say as to what happens around you in the building in which you rent.    Expect your rent to increase regularly too! 
Apr 4, 2013 5:22AM
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also the jobs report was weak yet again this quarter. i don't think good jobs are easy to find. i feel a lot of people are still getting laid off ect. me included. i don't think the economy is stable enough. if u buy a house plan to stay there a  while. if your job situation changes what do you do foreclose?
Apr 4, 2013 7:01AM
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Little Known Facts--- in 2007-08, it wasn't just wage-earner careers being mass-terminated. Banks called nearly ALL of the small to medium sized business and commercial loans in that they could. The annex rooms in every courthouse were filled with lawyers trying to negotiate alternatives. Those who could manage them, ended up with really raw deals (loan sharking). Apartment building and complex owners got really bad deals. The move was to collapse them and force those complexes into central management company operated ventures controlled by the BANKS. Many had to. The problem was- that management companies cost more than internally-managed staffers so rents went up but profits did not. Since then, we all know that common wages have dropped off. Better to live with relatives or, co-habitate in a purchased home that has been stripped of value and mortgaged under 5%. Without 95% or higher occupancy rates, the sheer cost of rolling maintenance in complexes eats up all of the rental income. Raise it and fewer can afford to live there. What we REALLY need right now is-- better government actually investigating the causes of our collapse and going after the corrupt white collar thugs who committed terrorism for wealth. Close the banks. We will know all of this the very next day.
Jan 29, 2014 12:11AM
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That is interesting, I hope that the market is really balancing out, because I have a feeling that it is not, but I really don't want my rent to go up.

Jason.
http://www.acpm1.com/
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