There’s been plenty of talk about how the housing bust
propelled the rental market to new heights as people skipped buying a home and
decided renting made much more sense.
But now as the housing market enters
an unsteady recovery phase, the relationship between the two sides of the
market is shifting. Now it seems that markets favoring sellers are often places
where apartment developers are looking to build. So in this case rentals would
benefit not from a weak housing market, but a strong one.
The best places to sell your home
are almost exclusively in the West and Southwest of the country, according to a
new report from real-estate listings service Zillow. The best places to buy,
generally, are on the East Coast or in Midwestern Rust Belt cities. Zillow’s
calculation is based on a number of factors, including a comparison of sales
prices and list prices and the number of days it takes to sell a home.
In many of the cities where sellers
have the most negotiating power – San Jose, Calif., San Francisco, Austin and
Phoenix, for example – apartment construction is heating up as well. That’s
according to apartment pipeline data from Axiometrics Inc., a real-estate data
firm that recently launched a research tool that tracks the number of planned
apartment units.
The trend makes sense: Developers
deciding to pull the trigger on construction of new apartment building look at
a lot of different factors, including the renting versus owning balance of a
market. If a city is a true sellers’ market, that’s a sign that more of the
population moving there or starting a new household will turn to rentals until
the market comes back into balance.
Similarly, in markets where buyers
have the upper hand, like Cincinatti, Cleveland, Providence, Jacksonville and
Hartford, Conn., developers have less interest in building rentals, a sign that
apartment builders are shying away from the competition from for-sale
single-family homes.
There are, of course, some
exceptions.
Perennially an outlier, New York
City is considered by Zillow to be the nation’s No. 4 “buyers’ market,” but
Axiometrics shows that 111 projects, with nearly 40,000 new apartments, are
planned for the next few years. That’s probably because New York, with its
strong job market and a population that’s almost continually turning over, has
seemingly endless demand, despite rising apartment rents.
On the other side, some markets that
have seen steep price declines, like Las Vegas, Sacramento, Riverside, Calif.,
and Salt Lake City, are considered “sellers’ markets” by Zillow because of
bidding wars that have erupted as investors, often paying all-cash, look to
convert foreclosed homes into rentals.
But none of those markets have much
in their apartment pipelines. Apartment builders know they can’t really compete
with single-family rentals or a market where retail buyers can still purchase a
home cheaply from a bank or an investor looking to get rid of it quickly.
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