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As Home Foreclosures Rise, Rents Flatten

By Les Christie,

CNNMoney

Posted: 2008-01-17 12:01:25

NEW YORK (Jan. 16) -- Home prices dropped last year in most cities around the nation, and now rents are flattening out in many of the markets worst hit by the housing downturn.

According to data from Rentometer.com, supplied exclusively to CNNMoney, the median monthly rental bill for a sampling of 10 metro areas all around the United States rose just 0.5 percent in 2007 from $1,457 to $1,465.

Rentometer, which publishes rent-comparison statistics online, does not have historical rent data prior to 2007, but according to real estate consultant M/PF YieldStar, national rent increases had averaged between 2 and 3 percent annually the previous several years.

Home prices post record decline "The major factors having an impact on housing prices are foreclosures, which make more rental property available," said Owen Johnson, president of Investment Instruments, parent company of Rentometer, "and also foreclosures that are not happening."

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In the latter case, according to Johnson, many speculators bought properties to "flip," selling them quickly in a rapidly appreciating market. In some Sun-Belt areas, investors bought condos and other properties while they were still in development, to sell when a project finished.

Other investors bought existing single-family homes or other properties, intending to do cosmetic improvements and then sell them at a profit. But before they could do that, the slump hit, and home values dropped. Instead of selling at a loss, investors of all stripes are now renting them out.

Of the 10 areas sampled by Rentometer, Atlanta and Houston rents declined the most, plunging 12.8 percent for the year. Median monthly rent for all rentals in Atlanta is now $884, and in Houston it's $779.

The New York metro area had the highest median monthly rent in 2007, at $1,729, and it posted the biggest increase of 12.8 percent. San Francisco, where it grew 8.5 percent to $1,685, and Boston, where it rose 6.8 percent to $1,528, also had strong years.

San Francisco and New York are examples where Johnson said "massive demand" more than offset increased supply. These cities compete in a "global market," he said, and, by world standards, they're still relatively inexpensive for foreign currency-based consumers taking advantage of a weak dollar.

Other cities reporting big declines included Washington (11.8 percent), Miami (9.0 percent) and Phoenix (7.3 percent).

Housing: No room for bulls There are unique dynamics to the rental market, according to Johnson. Rents rise and fall independently of home prices. And there's often a push-pull to rental amounts: They're pushed up when foreclosures put homeowners back in the rental market but pulled back because the supply of rentals increases.

And, while national figures tend not to be too volatile, local markets can record large swings, as they did in 2007, when four of the 10 markets covered recorded double digit gains or losses.

Sometimes small events can leverage large changes, according to Johnson. "If MIT opens a new dormitory, for example, it can decrease rents substantially all over the Boston area," he said.

Pulling just a few hundred students out of the rental market in Cambridge (where the Massachusetts Institute of Technology is located) cascades down across many neighborhoods. Suddenly, there are a lot of empty apartments in the area, and renters from other places move in, increasing inventory in their old neighborhoods.

Foreclosure rates are a wild card as well. If foreclosures unleash so much supply on a local market that home prices plummet, that opens up affordable purchases for many renters. Cities enduring slumping economies, job losses and high foreclosure rates can also have very low barriers to home ownership.

In some Cleveland neighborhoods hit hard by foreclosures and an economic slump, there are homes for sale with terms of a mere $500 down payment and $350 a month. These are owner-financed, so there's not even any grueling loan-approval process. Buying a modest home there can be cheaper than renting.

As for 2008, Johnson predicts more of the same; the strong rental markets will stay strong and the weak ones weak.

"Foreclosures have not worked their way through the system yet," he said. Overall, that will mean both additional supply on the market but more renters as well, leading to a flat national market.

2008-01-16 16:25:35

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Mightyfish 09:14:12 PM Jan 20 2008

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as the president dont you think its fair they get good **** *** every once in a while...it is a stress release. If bush had gotten a few maybe we wouldnt be so deep in the middle east...food for thought//

Magnet410 09:00:15 AM Jan 20 2008

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I am only trying to point out the history of this nation has had only white males for presidents of this country. So....are the real issues here gender / race. Change is good. No where does the Constitution state people would be better served by "white males" as the president of the US.... From where I sit a change is very much needed. So why not Clinton or Obama?

Magnet410 08:55:57 AM Jan 20 2008

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1. What are the qualifications to be president? How old must you be? [eligibility, requirements, minimum age] No Gender or Race is mentioned. So what is the real problem with Obama?
It is found in the Constitution of the United States, Article II, Section 1, Clause 5:

No Person except a natural born Citizen, or a Citizen of the United States, at the time of the Adoption of this Constitution, shall be eligible to the Office of President; neither shall any Person be eligible to that Office who shall not have attained to the Age of thirty five Years, and been fourteen Years a Resident within the United States.

PWRMFD 09:28:00 PM Jan 19 2008

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Regarding WBlum524's comments,

I agree completely, Obama is not my choice for President. Never mind his political views and positions any American who does not respect what the flag stands for should not be allowed to vote, never mind run for President.

PDuvalS 09:07:08 PM Jan 19 2008

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THE WAY IT LOOK THE WORLD AND OUT COUNTRY IS GOING DOWN HILL I LIVE IN THE UNITED STAES AND I HATE IT HERE NOW AND WISH THERE WAS A BETTER STATE WITH BETTER MORALS AND BETTER JUSTICE SYSTEMS OUR COUNTRY IS GOING TO FALL FLAT ON ITS FACE BECAUSE WE NEED A BETTER GOVERMENT THAN WHAT WE HAVE NOW.

JOE BOXER 1111 09:00:00 PM Jan 19 2008

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OBAMA....HOOORAH!!!! HE S THE BEST!!! WAKE UP AMERICAN ITS ABOUT TIME WE HAD A BLACK OR A FEMALE PRESIDENT!!!
YEP.....WHAT GOES AROUND COMES AROUND.

Wblum524 08:38:59 PM Jan 19 2008

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OBAMA'S FAMILY IS MUSLIM HE CAN CALL HIMSELF WHATEVER HE WANTS. HES STILL A MUSLIM AS FAR AS IM CONCERNED. I COULD CARE LESS REGARDING HIS COLOR. HELL. ID VOTE FOR DENZEL WASHINGTON ANY DAY FOR PRES OBAMA DIDNT PLACE HIS HAND OVER HIS HEART FOR THE FLAG. I HATE BUSH BUT OBAMA WILL SELL US OUT QUICKER THAN BUSH U THINK THE ECONOMY IS BAD NOW? PUT THIS IDIOT IN THE WHITEHOUSE AND WATCH

Ridgerunner72160 08:34:31 PM Jan 19 2008

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Jferia3.....Well, obviously you're either a business owner who wants cheap mexican labor or one of those idiotic bleeding hearts who think it's the job of the United States to take care of the rest of the world. I guarantee you that 90% of this country doesn't want them here. They need to be deported back to their own country. I'm sick and tired of 3rd world trash coming here and demanding we take care of them.

JPMAX1048 08:34:24 PM Jan 19 2008

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Why does everyone blame Bush . You know nothing gets passed without CONGRESS approval or creation. Remember 9-11, That is why Bush has us in Iraq and fighting terror in the rest of the world. Our do nothing CONGRESS has put our country in the financial turmoil and loss of confidence in the government.
It is hard to decide on a individual for President. It surely not a Democrat.

Bufpon 08:22:45 PM Jan 19 2008

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Clinton did have scandals but with him as President the US was in the best shape in 40 yrs. Check the facts..And he did nothing against the country what he did was strickly against his own family morals.. Not that nothing like that ever happened in the White House before...

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