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Supply & Demand: Rental Home Addition

Tuesday, April 23, 2013 - Article by: NvMortgageMan - New American Mortgage - Message

As articulated in this article from Mortgage News Daily, supply and demand is in full bloom as the number of available rental properties fall and associated rental costs go up. The pressure is being felt at both ends as more people are entering the rental market while fewer properties are entering the pool. For example, the areas surrounding San Francisco continue to not only see a surge in appreciation but an escalating bidding war over primarily single family homes. Owners of investment properties in the area are taking advantage of this appreciation and slowly adding to the nominal inventory in the area, especially if they've the property long enough and are near the end of investment's depreciation cycle. Wise Realtors should be combing their databases and public records and keying on this potential inventory pool.

The U.S. Census Bureau released two housing market briefs on Tuesday, both the results of data collected from the American Community Survey. Rental Housing Market Condition Measures: A Comparison of US Metropolitan Areas,examines four characteristics of the rental housing stock using data collected by the survey in 2009 and 2011. Physical Characteristics of Housing looks at basic physical and structural characteristics of the total housing inventory on the national and metropolitan area levels using data from the same period.

The four characteristics examined in the rental housing brief are gross rent, gross rent as a percentage of household income, rental vacancy rates, and renter share of total households. The survey found that thenational vacancy rate declined from 8.4 percent in 2009 to 7.4 percent in 2011 and approximately four times as many metropolitan areas experienced declines in rental vacancies as experienced increases.

The share of U.S. households that rent rather than own increased from 34.1 percent in 2009 to 35.4 percent in 2011. Only 3.0 percent of the nation's metro areas saw a decline in the share of renting households while almost a quarter showed an increase in the percentage of renters.

The brief found that more renters are spending a high percentage of their household income on rent. Policymakers use gross rent (median rent plus utilities) as a percentage of income as a measure of housing affordability, and it is often used to determine eligibility for housing programs. The report considers renters to have high rental costs if they spend 35 percent or more of household income on gross rent. Renters with these high costs increased nationally from 42.5 percent in 2009 to 44.3 percent in 2011. However, average rental rates in the United States declined from 2009 to 2011.

Nationwide, only 11 metro areas reduced their shares of renters with high housing costs, while 62 metro areas increased their shares. Among the 50 most populous metropolitan areas only two became more affordable for renters across the benchmark periods, Richmond, Virginia and Buffalo, New York where the share of renters bearing high costs declined by 3.2 percentage points and 3.0 respectively. Some of the heaviest rental costs were borne by renters in Miami with 55.7 percent of renters experiencing heavy rental costs. Orlando (52.9 percent); Riverside, California (52.2 percent); and New Orleans (51.3 percent).

San Jose, California led all metropolitan areas in median gross rents at $1,460 followed by Honolulu at $1,419. The lowest median gross rents were $502 in Wheeling, West Virginia and $536 in Johnstown, Pennsylvania.

"While we saw a decrease in rental vacancy rates and pricing in some areas, the burden of rental costs on households increased across many parts of the nation," said Arthur Cresce, assistant division chief for housing characteristics at the Census Bureau. "Factors such as supply and demand for rental housing and local economic conditions play an important role in helping to explain these relationships."

The highest rental vacancy rate in the country was Myrtle Beach, South Carolina at 40.3 percent while the lowest vacancies were in San Jose (3.5 percent) and Milwaukee (3.5 percent. Vacancy rates increased the most in two Virginia metro areas, Richmond which went from 7.8 percent to 13.2 percent and Virginia Beach which increased from 6.2 to 8.5 percent. St. Louis also had a substantial increase, from 6.5 to 7.9 percent. Despite the large share of metro areas with declining vacancy rates, which could signal rent increases, 57 metro areas had gross rent declines and only 23 had gross rent increases.

The metro area with the highest share of renters was Los Angeles (50.8 percent) followed by New York (48.9 percent).

The Census Bureau brief on the physical characteristics of housing looks at what was an average of 131.8 million housing units over the 2009 to 2011 period, assessing the types of housing structures, age of homes, and the size of the structure as measured by number of rooms. Only 6.0 percent of all housing units were built in 2005 or later while homes built before 1950 accounted for 19.3 percent of the total. Thirty-nine metro areas had a share of newer homes that exceeded 10 percent of the inventory but only Gulfport, Miss. (16.4 percent) exceeded 15 percent.

Houses built before 1950 exceeded 45.0 percent of the housing inventory in Elmira, N.Y. (49.5 percent), Scranton, Pa. (48.8 percent), Johnstown, Pa. (47.0 percent), and Pittsfield, Mass. (46.9 percent).

Single-family detached homes constituted 81.1 million or 61.5 percent of the total nationally and were the primary type of housing in 95 percent of the metropolitan areas. Another 7.6 million units (5.8 percent) were classified as attached units, commonly referred to as town or row houses. Buildings with 2 to 4 units composed 10.9 million or 8.3 percent of housing units and 23.5 million units were in building with more than four units. There are also 8.6 million mobile homes (6.5 percent) in the inventory.

Those areas with the lowest share of single family detached units were New York (36.3 percent), Naples, Fla. (40.0 percent) and Miami (42.3 percent). There were metro three areas where mobile homes accounted for a quarter of more of the housing inventory: Farmington, N.M. (32.0 percent), Yuma, Ariz. (29.0 percent) and Lake Havasu City, Ariz. (26.7 percent).

The median number of rooms within a housing unit in the U.S. is 5.5. Sixteen areas had a median larger than 6 rooms. Provo, Utah had the largest percentage of homes with 9 or ore rooms (30.6 percent) followed by Logan, Utah and Idaho Falls, both slightly over 26 percent. Ten areas had a median number of rooms below 5.0 and Manhattan, Kansas and Myrtle Beach had the highest percentage of units containing only one room, 11.7 and 11.6 percent respectively.

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