The up-and-down housing sales pattern of the past three years is continuing to reverberate in the rental market here, making reasonably priced apartments hard to find in the District while creating a glut of houses for rent in the suburbs.
The tightening of the District's rental market and the increased number of rental houses available in the suburbs can be traced to the same roots--high interest rates and high prices.
More people are staying in apartments in the city, delaying a move to their first home until the real estate market and interest rates stabilize, according to a cross section of real estate professionals.
As winter approaches, many suburban Realtors are predicting big jumps in rental house inventories. Fairfax County in July listed 1,660 rental houses in its multi-listing service, according to Joseph E. Hayden, executive director of the Northern Virginia Board of Realtors. That is a big jump from the 1,284 units available in June. Hayden said the market may be even bigger than it appears because his figures do not include a large number of houses available for rent by their owners.
The one exception is western Prince William County, where I-66 has suddenly made commuting much easier. Phil DeWitt, of the Prince William Board of Realtors, said rentals in that area, including Manassas, Nokesville and around Gainesville, are extremely scarce compared to the eastern end of the county where residents who commute to the city have to use the always busy Shirley Highway.
"If you take the statistics in Fairfax County at face value, we've got a lot of houses for sale stacked up," Fairfax Board spokesman Hayden said. Statistics for August will not be available until next week.
Hayden said a major factor in Fairfax County's increased rental base may well be the fact that sellers can't sell if they bought recently. "If they bought last year at 16 percent, they can't even break even. Nobody wants to assume a 16 percent mortgage."
Current erratic rates just further confuse things, he said.
Wallace Spires, office manager for Shannon & Luchs apartment management division for the District and Maryland, said, "Rental properties in D.C. proper are at a premium. But once you go into the Maryland suburbs the vacancy rates vary from 3 to 5 percent."
Anything reasonable--rentals under $1,000 a month--in the Connecticut Ave., Massachusetts Ave. or Georgetown area go fast, Spires said. Several Realtors who manage small buildings in those same areas say they are always full. While other areas of the city aren't as tight, finding suitable accommodations on Capitol Hill is extremely difficult.
Even though conversion of apartment buildings to condominiums has slowed all over the city, apartment managers report waiting lists in all parts of the city.
The tightening Washington rental market matches the trend in 10 major areas targeted this week as "Good Areas for Investors in Rental Units" by a Florida law firm that monitors real estate markets for investors.
Washington is the most northern of the "good investment" areas picked, according to attorney Leslie Gross. His law firm of Fromberg, Fromberg, Roth, Gross, Cohen, Shore & Berk, of Coral Gables, based its report on the national rental market on hundreds of phone calls to Realtors, investment groups and developers across the country.
Washington's tight, healthy rental market has a lot of the characteristics they used to pick good potential investment areas, Gross said. "Dynamic growth is already going on and there is not an ungodly surplus." Washington also offers the cultural amenities which Gross says will continue to attract young renters, those in the 24-34 age bracket.
Realtor Spires agrees. "In the Washington metro area as a whole there hasn't been much building of apartments in recent years. Investors have put their money elsewhere. The available stock has dwindled."
Meanwhile, a cross section of Fairfax Realtors polled see an increase in single family homes available for rent. More than 11,600 houses were for sale at the end of July in Fairfax. August is traditionally a slow sales month anyway and erratic interest rates experienced this month scared a lot of people into staying put--either in their same house or in a rental unit.
George Bigus, a broker with the Springfield West office of Merrill Lynch, said decisions by military people to put their houses up for rent rather than selling if they expect to return to the Washington area, is boosting rental inventories.
"There has always been a significant rate of appreciation in the suburban market over a short period of time," Bigus said. But those days of 10 percent annual appreciation are considered gone for good. Bigus said the military folks he's dealing with are not willing to take a chance on having to buy in the future in a bad market at higher interest rates.
Many Fairfax firms are carrying heavy loads of houses for sale. "We're carrying a high inventory of housing," said Arlis Simmons, broker at Shannon & Luchs' McLean office. A bulk of their listings are in the Great Falls-McLean area. "Sales are still strong but not as much as it would be with better interest rates." he said.
Statistics on available rental housing in the Maryland suburbs are hard to come by since neither the Montgomery County Board of Realtors nor the Prince George's County board keeps records of available rental housing.
Hans Nestler, executive vice president of the Montgomery board, said 6,276 single-family units are available for sale based on the latest available statistics which do not reflect August sales.
"It is hard to analyze the effect on the rental market. We don't know if the houses that have been selling were vacant or occupied," Nestler said. If it's not a mandatory sale, he predicts sellers will take the house off the market rather than rent it.
However, Realtors in most all jurisdictions said would-be sellers of vacant properties do not want to face utility expenses to maintain a vacant house during the winter.
Available rental single-family houses in Prince George's County "are scattered all around," said Paul Fowler of the Prince George's Board of Realtors. "The number varies. It's hit or miss as to how many are available." according to Paul Fowler of the Prince George's Board of Realtors.
Fowler said the board conducts a weekly count of the total units for sale. "Since the first of the year, that figure increased to a peak of 3,418 in May." As of Aug. 23, 3,118 units were available for sale. Seven percent of that is new housing, he said.
David Urich, a broker with Intervest, a Northern Virginia firm that specializes in investment properties, said it's a good time for investors to buy. "It's not a stagnant market for investors buying single family homes," he said. Such investment buying can complicate the purchasing process for first time buyers or others needing to buy in the under $100,000 category. When investors buy at that level which almost assures them of a positive cash flow because of rising rental rates, investors are competing with a large segment of the buying public.
Urich, Florida lawyer Gross and other real estate professionals in the area agree on reasons they think buyers, especially younger buyers, are opting to rent. Some reasons are sociological as well as financial.
"The old American dream of home ownership, held in awe for so long, is now being held in a little less esteem," Gross said. A lot of young people weigh the pros and cons of renting or buying and find there is a little more in favor of renting. Couples who have two incomes already to meet the economic requirements of the life styles they have chosen find there is not much left for vacations if too big a chunk of the combined income goes into the house, Gross said.
Investment counselor Urich said the decline in expected appreciation may limit many from buying in this transient market if they know they will only be here 18 months. "They need to be here at least two to five years to really feel an increase," Urich said. He added that the transient buyer should consider the advantages of buying now and living in it and then renting the place once they're transferred."
Lawyer Gross said the study his firm's report produced reveals some interesting factors that apply to Washington:
* Single females prefer high rise apartments because they offer better security.
* "Condo-mania," the conversion of apartments to condos, have slowed. In Washington, the reasons include District regulations on conversions as well as the rise in interest rates.
* Rental units in cities are becoming more and more popular because the 24 to 34 age group wants to be close to the advantages of city life.
The other most active, and therefore attractive markets for investment buyers identified in the Florida study are: Atlanta, Denver, Dallas-Ft. Worth-Dallas, Jacksonville, Los Angeles, Phoenix, San Diego, Lee County, Fla., and the Florida Gold Coast counties of Dade, Broward and Palm Beach.
All those areas are in the South or Sun Belt states and while they those areas offer good investment opportunities, other Sun Belt markets aren't faring so well. Both the Houston and Tulsa markets have overbuilt, Gross said.
Earlier this summer, The Wall Street Journal reported a glut of rental units in Houston and other southwestern cities, with apartment vacancy rates awere reported in Houston and other areas were reported running as high as 10 to 30 percent in apartment rentals available.