WASHINGTON (TheStreet) -- The American dream of homeownership has dissolved into the daydream of a decent rental, and some cities are making it very easy on their month-to-month newcomers.
Vacancies among the nation's rental properties dropped from 6.6% last year to 6.2% last quarter as 44,000 more units found renters during that period than during the same period a year earlier, according to
. That's the largest increase during that normally slow winter period since 2000 and the lowest vacancy rate since 2008.
"The vacancy rate skyrocketed to a record high of 8% in 2009, so it wasn't like this sector dodged a bullet," says Victor Canalog, Reis' vice president of research and economics. "Since we've only been around since 1980, we've never seen a vacancy rate that high, but we saw that sector recover during every quarter in 2010 faster than the rate of the economy."
Slight improvements in job growth and employment figures are driving demand for housing again, but even the 4.5% rate on a 30-year fixed-rate mortgage quoted by Fannie Mae this month -- the lowest since December -- haven't helped year-to-date existing home sales plummet to 13% of what they were just before the first-time homebuyer credit expired during the same period last year, according to the National Association of Realtors. The foreclosure rate is leveling off, according to RealtyTrac, but the Census Bureau found that U.S. homeownership dropped from 69% in 2004 to 66.5% at the end of last year.
The $163,700 median existing home price is 5% lower than it was a year ago, but potential homebuyers facing 9.1% national unemployment and tight credit requiring a 20% down payment on home purchases are content to wait it out in a rental.
Potential landlords just love to hear that. Average asking prices ($1,047) and actual paid rent ($991) are up roughly 2% as 79 cities reported rent increases and shrinking rental stock. Reis noted that landlords who were offering incentive packages a year ago that gave tenants three to four months free on 12- to 15-month leases have cut those concessions to a month or less.
"Those rents basically bring you back to levels we last saw in 2008 before the downturn began," Canalog says. "It's not even a question of how soon we'll get back to previous peaks -- we're there already."
With help from Reis,
took a look at the U.S. rental market and came up with the best 10 places to buy a rental property and cash in on rising rents and dwindling supplies. We haven't seen cities this excited about rent since Broadway in the '90s:
One in every 89 homes in Las Vegas is being foreclosed upon, according to RealtyTrac, with sections of the city seeing foreclosures on one in every 25 houses. The prices of those homes have tanked as a result of that 3.21% foreclosure rate -- the highest in the country -- with the average price of existing homes dropping from $220,000 two years ago to just $128,000 today. Where once Las Vegas had more migration from within the U.S. than any other U.S. city, the exodus of those who fueled the boom is driving the bust.
"On top of the fact that other sectors like housing or even retail properties are crumbling in Las Vegas, it's bringing the rental market down with it because the population is in flux," Canalog says. "It's not Detroit, but it's certainly not experiencing the kind of growth that Las Vegas is used to or depends on."
In Las Vegas, it's time to buy in before a turnaround -- it would be a buyer's paradise if any buyers existed. Unemployment still hovers around 12%, which is better than the 15% rate from this time last year, and tourist traffic at McCarran airport was down nearly 3% last year. Even rentals have been a tough sell. The vacancy rate's slow decline is coupled with a 2.6% drop in rental prices over the past year, making Las Vegas one of only two cities nationwide to post an overall rent decrease within the past year.
That wouldn't be so bad if rents in Las Vegas hadn't been declining steadily since 2008. Low rents and rentable properties are there if renters want them, but renters who think they can do better might consider standing their ground. Rents fell 1.6% during the fall, but slowed to a 0.1% decline last quarter.
"You could say that the distress is lessening in Las Vegas, but there are certainly still problems there," Canalog says.
With rents that have only risen 0.2% in the last year, Orlando really is the most magical place on Earth.
"That's not much to call home about if you're a landlord," Canalog says. "The condo conversion boom that happened during the housing boom really went bust as well, and the condo flippers ended up being reluctant owners who, if they haven't been foreclosed upon, probably ended up renting the properties out."
That's nobody's idea of a dream vacation, and it's turned into a nightmare for Orlando. A place best known for trying to sell happiness is hurting just as much as Sin City's adult playground in the desert -- and, like Las Vegas, is bottoming out. Median existing home prices have dropped 7.6% in the past year and from $209,000 to $120,000 since 2008. The city's 0.68% foreclosure rate still ranks among the country's Top 50.
Tourism continues to bolster Orlando's business and has helped drop the unemployment rate from 11% a year ago to 9.9% today, but that's still above the national average. With that kind of instability, having rent that likely won't move too much can be a nice consolation.
Colorado Springs, Colo.
Renters are going to have to go scraping through listings to find vacancies, but the search will be worth it. Colorado Springs rents have risen only 0.8% within the past year and slowed to 0.1% growth last fall.
When your rent starts out that low (compared with a $910 average in Denver) a little year-to-year stability tends to go a long way. While Colorado Springs hasn't been completely shielded from the recession's effects, its 9.1% unemployment rate is on par with the national average and its proximity to the Air Force Academy, Fort Carson, Peterson Air Force Base, Schriever Air Force Base and other recession-resistant entities has helped the city weather the storm better than most.
Perhaps the best part is that renters aren't stepping into a market pressured by falling housing prices. The average home price in Colorado Springs stayed relatively stable last year during a 0.3% decline, and the drop in median housing prices from $205,500 in 2008 to $184,300 isn't as steady as it would appear. That median price has fluctuated from $189,800 in 2009 to $195,500 last year and as high as $201,000 last fall. If potential sellers don't like the housing prices now, all they have to do is wait a quarter.
Last year's heavy rain and flooding certainly didn't help a city that was already saddled with 10% unemployment and falling housing prices that would drop 8.5% by year's end, but renters continue to be treated well here and can play a big role in the city's recovery.
No city in America has a rental vacancy percentage as high as that of Memphis, and few cities can match its $682-a-month average rent. Knoxville's less expensive at $596 a month, but only 5.8% of its rental properties are vacant. Nashville, meanwhile, is similarly tight on housing, but bumps up the price of an average rental to $757. That figure's growing more quickly, too, as rents have risen 1.9% in Nashville over the past year compared with 1.4% in Memphis.
Blues, barbecue, Beale Street and palatable basketball from the University of Memphis and Memphis Grizzlies still make Memphis a great place to be, but its glut of rentals and relatively stable prices make it a bargain.
Welcome to the other city in America where rents declined last year. Though Jacksonville's average rent is down only 0.3% over the last year, that's still a welcome change from the 1.9% average increase the U.S. experienced during the past year.
Much like Las Vegas, Jacksonville's labor and housing market was hammered by the recession. Median housing prices dropped from $174,600 in 2008 to $127,400 today and fell 9.5% in the past year alone. Unemployment's made new buyers a bit scarce as well, with the unemployment rate climbing as high as 11.2% last March before coming back down to 9.7%.
"Things are getting healthier for Jacksonville, but you'll notice that rents are still kind of tepid," Canalog says.
Unlike Las Vegas, Jacksonville has a fairly stable economic base as home to the third-largest military presence in the country. A submarine base, naval air station, naval station and Marine base prevent the city from experiencing the same uncertainty as Las Vegas, while rent prices have risen in the past two quarters to help stabilize the rental market somewhat.
For a potential rental property buyer, Houston's the best of all worlds. Not only does Houston have adequate room to expand, which explains its second-highest-in-the-nation vacancy rate, but a thriving economy that drives both demand and prices.
"The great thing about Houston and other Texas markets is that there isn't as much building constraint and that it's a net job creator that builds demand," Canalog says. "Given that supply constraints aren't as operative, you get vacancy rates that won't be pulled down because supply will match that increasing demand."
Houston rental rates have risen 2.1% within the past year as the good fortunes of local energy companies including
fuel the decline of the city's below-average 8% unemployment rate.
While scared buyers and sellers haven't exactly flooded the market, as average housing prices actually climbed from $151,000 in 2008 to $155,000 just last year, there still may be a chance for a would-be landlord to snag a deal. Average housing prices have dropped 1.1% since the first quarter of last year and plummeted from a high of $159,000 last summer to $148,500 now.
A great city with a lousy sense of timing, Atlanta is saddled with one of the highest vacancy rates and lowest rental growth rates in the country mostly because it didn't know when to build.
A glut of homes hit the market just as the recession hit stride, which is why average housing prices that topped out $150,000 in 2008 fell by more than a third, to $99,000. It didn't help that everyone in town decided to switch condos to rentals at the same time and allowed rent growth to stagnate at 0.5% for all of last year. Suddenly, a city with a huge airport that was building and gentrifying had to pump the brakes.
"Atlanta doesn't have many boundaries in terms of supply constraints and isn't Manhattan, where you can only build on 13 miles by two miles of land area," Canalog says. "If there wasn't as much building prior to the bust they'd be in great shape, but there was a lot of building of houses, apartments and office buildings because it was supposed to be the next big thing."
If demand is coming back, it's sure taking its time. Unemployment in Atlanta's been steady at 9.7%, and while
, the colleges, airport and growing city itself provide a great base -- the metro area has added more than 1.6 million people since 2000 -- the rental market is still just unrealized potential at this point.
Ample vacancies, low rents and continued rent growth are great and all, but you know what makes them even better? Throwing them into the middle of a college town.
Whether you're a renter or a potential rental property buyer, Columbus has a lot to offer. As with many state capitals that also happen to be home to state universities, Columbus is insulated from economic upheaval by government jobs and a stable employer at
. Unemployment is 7.3%, well below the national average.
Unfortunately, it's not immune to economic pressure on the real estate market and has seen average home prices fall from $140,000 in 2008 to $114,000 today. That includes a 9.1% collapse in the past year alone. Though Columbus' 8.6% vacancy rate is still high, it's actually shrunk since last year and has spurred a 1.2% increase in the city's average rent within the past year.
As is the case with Houston, Phoenix isn't confined by where it can build, and new properties tend to jack up the vacancy rate quite a bit. Instead of a swarm of energy companies, however, Phoenix has a perfect storm of a capital city's state jobs, college town job security thanks to Arizona State University and a military presence at nearby Luke Air Force Base.
So why has rent grown by only 0.8% over the past year? Part of the answer is Phoenix's trademark sprawl, but a bigger part of the answer is a housing crisis that slammed the brakes on said sprawl. The good news is that housing sales are actually up 1.2% over a year ago. The bad news is that the prices of the homes being sold are down 11.2% during that span.
Average Phoenix home prices dropped from $191,000 in 2008 to $126,700 in March before inching back up to $128,000. Meanwhile, Phoenix's unemployment rate is at 8.1% and falling after climbing as high as 9.5% last year. There's money to be spent, but Phoenix seems wary of plunking it down on a house until the market settles. Meanwhile, the rental vacancy rate continues its slide.
Tulsa's rentals are cheap, available and growing in value, but there's a bigger draw in this section of Oklahoma: jobs.
Tulsa still lags behind Oklahoma City's sparkling 4.5% unemployment rate, but its own 5.3% jobless rate is nothing to sneeze at, especially considering it stood at 8.6% as recently as last March. Growing natural gas companies such as
and expansion by
help, but an economic plan that convinced American Airlines to keep its maintenance center there and made enhancements to Oklahoma University and Oklahoma State University facilities in town helped cut that jobless number in a hurry.
Despite its recent economic good fortune, Tulsa is still in the middle of a slight housing slump. Average home prices dropping from $137,000 in 2008 to $123,000 today. With plenty of universities including the University of Tulsa and Oral Roberts University around to keep both the economy and rentals humming, however, the difference could be made up on a month-to-month basis.
-- Written by Jason Notte in Boston.
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Jason Notte is a reporter for TheStreet. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, the Boston Herald, the Boston Phoenix, the Metro newspaper and the Colorado Springs Independent. He previously served as the political and global affairs editor for Metro U.S., layout editor for Boston Now, assistant news editor for the Herald News of West Paterson, N.J., editor of Go Out! Magazine in Hoboken, N.J., and copy editor and lifestyle editor at the Jersey Journal in Jersey City, N.J.