Cool-Down In Housing Market Hits Rentals

By Nancy Trejos
Washington Post Staff Writer
Saturday, March 24, 2007

There used to be little doubt that owning your home was better than renting it. There's no reason to pay rent when you can pay a mortgage and build equity, the argument goes.

Now that home-sales volume is low and prices have dropped in some areas, many potential first-time buyers are wondering if a house or condo is truly a good investment. The turmoil in the mortgage industry has also driven some potential buyers away, real estate agents said.

"Any time you have a bit of hysteria, that creates uncertainty, and people don't like to make a major purchase like a house if their finances are borderline," said Thomas Wilson, a real estate agent with Long & Foster in Chevy Chase in Northwest.

So at this point, does it make more sense to rent than to buy?

There's no way to tell for sure.

If you decide to buy, you can be more picky than you could have been a couple of years ago. Inventory is high, interest rates are low and sellers are dropping prices or offering incentives.

But if you want to rent, remember that you're in one of the toughest markets for renters. Vacancy rates -- or the number of units available for lease -- are among the lowest in the country, rivaling those of New York and Los Angeles. The Washington region's vacancy rate was 3.4 percent, compared with a national rate of 5.9 percent, according to a first-quarter report by Delta Associates, a real estate information firm in Alexandria. That said, the cooling housing market has affected the rental market. A year ago, the vacancy rate was 2.3 percent. In 2006, developers turned more than 8,600 condos into rentals. At the same time, owners who were trying to sell their condos gave up and decided to rent them instead. Investors who bought their properties with the intention of flipping them right away also became landlords, creating a so-called "shadow" rental market that's not counted in those vacancy rates.

It's not only condos that have been turned into rental units. Many owners of townhouses and single-family houses are renting them to cover their costs. The number of houses, townhouses and condos listed for rent in the multiple-listing service, commonly used for for-sale properties but also for rentals handled by real estate agents, increased 23 percent from November 2005 to November 2006.

"These frustrated sellers, I guess, said to themselves, 'I'll just rent this property until the market is better,' and as a result, it impacted the for-rent market by all of a sudden crowding the . . . market with a lot of for-rent product," said Gregory Leisch, Delta's chief executive.

That means there are a lot of amateur landlords out there. Real estate agents say that if you're renting from an individual, a real estate lawyer should examine the lease.

"With a valid lease, you wouldn't have a problem one way or the other from an apartment manager or an individual," Wilson said.

Despite the increase in supply of apartments, the average rent regionally increased by 3.9 percent from March 2006 to March 2007 for investor-grade properties. The average monthly rent on those properties was $1,405, up from $1,343, Leisch said.

Delta researchers predict that the number of rental apartments will continue to grow but say that if job growth remains solid, the rental market will remain tight. That will cause rents throughout the region to continue to rise.

Because the rental market remains strong, landlords aren't throwing freebies at potential renters.

Concessions in the top-end buildings, which usually have amenities such as fitness and party rooms, edged higher in the first few months of this year, to 3.4 percent from 2.4 percent in the last quarter of 2006, the report said.

Still, Wilson said, "If you're a renter, [the market's] not so good. If you're a landlord, it's good."

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