Editor's note: As a special feature for April, TheStreet.com offers a 20-part series on virtually everything about real estate. This installment is Part 19.

Bad mortgage loans aren't the only thing weighing on the housing market.

In addition to the flurry of "for sale" signs sprouting up across the U.S. as homeowners try to unload property they can't afford, there is also a glut of condominium units under construction that could prove to be a drag on prices for years to come.

But that could be good news for tenants, as many of these condo developments are being converted into rental units. The additional supply should temper the rapid rise in rents, particularly in places such as Southern California, Las Vegas, Washington, D.C., and much of Florida.

For example, In Miami, considered the poster child for the condo craze in recent years, over 15,000 new units are expected to be completed in 2007, according to Torto Wheaton, a unit of CB Richard Ellis. That's more units than were sold in either 2005 or 2006, when the real estate market was much stronger.

Torto Wheaton senior economist Gleb Nechayev says condo developers, faced with limited demand for the new units, have three options: They can abandon the projects altogether, postpone putting new units on the market or complete them as rental units. "In reality, we will have some combination of those factors," he says.

For the past few years, the opposite was true: Speculative buying drove real estate prices up so high that many rental buildings were converted into condos. This diminished supply contributed to the rise in rents, particularly once employment picked up, putting more young people who had been living at home or bunking with friends in a position to set up housekeeping on their own.

As a result, rents last year rose upward of 7% in many parts of Florida, such as Tampa, Orlando and Palm Beach, and 4% or more in Las Vegas and Washington, D.C. Baltimore tenants faced increases of 4% or more, and 3% in San Diego.

But the once-popular trend of converting rental complexes into condos appears to have had its day. The National Association of Realtors says condo conversion accounted for just 10%, or $9 billion, of the $87.4 billion of multifamily properties trading hands in the U.S. last year. That was down sharply from $30 billion, or almost 35% of the nation's multifamily transaction volume, in 2005.

Not only have condo conversions slowed, many units once destined for conversion are returning to the rental market. Senior economist Scott MacIntosh says the NAR doesn't track condo conversion "reversions," but the trade group is already incorporating the phenomenon into its forecast for rents in major markets. For example, it expects rents in Miami to rise by just 1.09% this year, down from 7% last year.

MacIntosh says the slowdown in rental growth is also quite noticeable in nearby Fort Lauderdale, where rents rose 8% last year but are expected to rise just 4.5% this year.

On the opposite coast, the NAR expects rents in Los Angeles to rise by just 4.45% this year, down from 6.05% in 2006.

San Diego is also seeing a glut of units being brought on the market as rentals, either as new units or as reversions, but rents are still seen rising 3% this year, about the same as last year.

Of course, condos aren't the only kinds of property finding their way to the rental market; plenty of investors are choosing to rent out homes they have been unable to sell at a profit. Jack McCabe, chief executive of McCabe Research and Consulting in Deerfield Beach, Fla., says there's a "shadow market" for rental properties in the state, though it's almost impossible to gauge how large it is, since it consists primarily of individual properties that may not even be listed in the local papers.

"But we know it's of significance because there are some large-scale rental operations that are offering incentives" to tenants, such as a free month's rent, minimal deposit or additional services, McCabe says.

"And they're doing it not because occupancy rates have dropped in any significant way but to try and maintain the high occupancy that they have," he says.
Allison Bisbey Colter joined TheStreet.com in 2006 from the New York office of Dow Jones Newswires, where she spent the previous seven years covering consumer finance, mutual funds and hedge funds. Prior to that, she worked in Europe for Dow Jones covering transportation from London and Italian capital markets from Milan. She is a graduate of Wesleyan University, where she received a BA in government.