"It's a Great Time to Rent!"

Rentals, Rentals, Everywhere and All the Rents Compete

In several of my posts on this blog, I've alluded to rents coming down in Key West.

I know this to be true as I have been watching the classified ads for the past 5 to 6 years. During the Great Housing Bubble runup from 2001 through 2005, I noticed fewer and fewer rentals on the market. Those which remained were asking higher and higher rents. A normal rent during that time was $2,000 and above.

I also never saw rentals last more than a week in the Key West Citizen classifieds. I can remember the old house we lived in on White Street where it was subdivided into apartments and rooms. Anytime anything became available, the place would rent out in 2 or 3 days.

Now there are so many rentals available in the paper that I've seen some go weeks and months before they disappear. The more expensive rentals are staying on the market longer.



Flashback to the Summer of 2004

I can remember two young workmates moving into a Oceanwalk condo back in 2004 which had 3 bedrooms. Late in their rental history, they began to rent out that 3rd bedroom to dancers who come down from Miami for a week to work our club just so they could meet their high rental payments. (With rent, electricity, cable and other utilities, they were paying over $3,000 a month)

These two young men had debts to pay off (credit cards, cars, and college) and were voracious eaters. Only one of them put away some money which saved his butt during the Summer and Fall of 2005 when 4 hurricanes hit. That was the Summer that many a non-saver finally left Key West. That was also the Summer when the Housing Bubble burst in Key West.

The rent these two guys paid Oceanwalk is more than what I pay now for an entire home . . . which is in a gated compound of three homes with a shared swimming pool. My home is also a ten minute walk to work. Hence, I don't pay $10 a night parking any longer. I also have a washer/dryer in my place. My friends in Oceanwalk used the coin laundry out there. Lastly, I am at the top of Solares Hill, a no Flood Zone. Both of my friends lost their cars to Hurricane Wilma when the storm surge swept ashore and flooded the parking lots of all those condos out on South Roosevelt.

Hence, I get more value renting this entire house for $1,900 a month than my friends got for paying over $3,000 a month.

Yes, the times, they are a changing.

With the growing glut of Housing for Sale inventory, rents are being affected in a very positive way for renters: they are coming down.

Housing inventory is even under-reported in the MLS listings, so the data we see is under-reporting the pressure on landlords to lower rents.

Meanwhile . . .

1. Inventories are rising more quickly than sales. Many South Florida counties are showing inventories hundreds of percent higher than the same time last year.
2. The great sub-Prime wipeout has forced remaining lenders to tighten standards in lending. Thus, fewer people are qualified to get any kind of loan.
3. Foreclosures are skyrocketing. Vacant homes and condos with no buyers anywhere to be seen are sitting with their lights off all over Florida. Even new home communities are seeing brand new homes vandalized as the finished homes sit empty of anyone who can afford one.
4. Many current homeowners who own a 2nd home which they bought as an "investment" are now carrying two mortgages longer than they had originally planned. Story after story in the mainstream media tells sad tales of unsavvy "flippers" who were caught with their skirts up and their pants down as the Housing Crash gains more momentum every month. Many of these Real Estate investors are now "upside down" on the loans for their investment properties, meaning they owe more on the property than it is currently appraised for as prices continue to fall.
5. Homebuilders such as Lannar are so deep underwater with lawsuits against shoddy construction and tons of empty, newly built homes sitting on the market for far too long, that they are now resorting to "auctions" for new homes. Many of these new homes sell for reductions of $100,000 or more in communities where homebuyers during the Housing Bubble are now fuming they were never offered these low prices for the exact same house. Some of these homeowners have turned in their keys to the homebuilders and have also given them notices they will sue.

With all this extra inventory coming on the market, what is the sense of a lender, homebuilder, flipper etc., paying taxes, insurance and maintenance on an empty property which doesn't make them any revenue at all?

Hence, the market is being flooded with rentals. And because so many rentals are on the market, landlords are being forced to lower rents so as to compete.

Two weeks ago, up in the Miami area, I passed by a large townhouse community off one of the busier thoroughfares in that city. Out front was a sign: "First Month's Rent Free, Small Security Deposit".

Miami Rents are Going Down, Down, Down

This same thing is happening in other areas of Miami as this new story tells us:

It's about to get a little easier for South Florida renters -- or at least a little less difficult.

While finding an apartment is still hardly stress-free, the sharp jumps in rental rates of recent years are finally starting to flatten out. There are now more vacancies. And thanks to a weak housing market, some condo and house owners who can't sell have decided to become temporary landlords instead, giving renters more choices.

What it all adds up to is a subtle but distinct change in the direction of the rental market -- one that Florida International University graduate student Heidi Williams has noticed.

Williams, 30, just started renting her 1,030-square-foot Brickell Key condo from an individual owner for $2,100 a month. That's after her agent negotiated $200 off her rent each month.

''I was actually surprised because I've never gotten that break,'' said Williams, who moved into the two-bedroom, two-bathroom place Monday. 'In my mind, they were just saying, `Let's get it
rented.' ''

Nationwide, the tilt in favor of renters is showing in apartment vacancy rates that have soared to 6.1 percent. In South Florida, vacancy rates are still much lower at about 3.9 percent. However, that's up from 3.4 percent for Miami and 2.7 percent for Fort Lauderdale a year ago.

''Renters are in a stronger position now,'' said Sam Chandan, chief economist at real estate research firm Reis Inc. ``But a vacancy rate of 3.9 percent is still a tight market.''

Rental rates are also starting to flatten out. They're still expected to rise about 4 percent this year, according to Jack McCabe, CEO of McCabe Research & Consulting LLC in Deerfield Beach. But that's significantly less than the hikes of 13 percent in 2006 and 8.4 percent in 2005.

Another sign of better times for renters is the return of incentives from landlords desperate for leases. Of 408 large market-rate apartment complexes in Miami-Dade, Broward and Palm Beach countries surveyed by McCabe's firm, about 10 percent offered concessions such as one month's rent and other incentives. That's up from virtually none in 2005 and 2006.

''They don't normally do this unless they see their occupancies drop,'' McCabe said.

These landlords are now facing competition from a new source of rentals -- condo owners. Some of these owners never planned on renting their condos out, but figure they might as well pay their mortgages through renting while waiting for the housing market to brighten.

Condo owner Emmanuel Fremin didn't intend to be a landlord. Fremin, a New York art dealer, planned to flip the 600-square-foot space he bought two years ago. Then the market slowed. Now he rents the one-bedroom, one-bathroom unit in Miami Beach for $300 a night or $2,000 a week -- and he says he's actually profiting.

''I can cover almost three times my mortgage,'' said Fremin, adding he makes more money renting than if he sold the place.

There's no way to track exactly how many condo or even house owners have become reluctant landlords. But the vacancy rate for houses and condos in South Florida went up from 2.3 percent in 2005 to 3.4 percent last year -- suggesting more places might be available to renters.

Then there are the new condos coming onto the market, also vacant. Broker Carlos Fonseca of ERA Home Sales & Rentals in Surfside is seeing 10 to 15 percent more new condos available for rent than last year, partly because more buildings opened this year.

Despite the new supply of spaces, apartment developer Jay Jacobson notes, there's still plenty of demand for rentals. The price of housing is still so high that many people have no choice but to rent.

''I don't see it being a devastating impact on the rental market,'' said Jacobson, a director at condo and apartment rental developer Wood Partners, who works in South Florida.

Delivrine Registre, 23, is finding that South Florida is still expensive, but there are more choices for renters now than when she first arrived two years ago.

After moving from Jacksonville, she looked on Craigslist and ended up renting an apartment for $950 a month plus utilities.

But when she looked online again two months ago for a new place, she noticed more rental listings than before.She decided to rent a room in a Kendall house for about $650 a month -- utilities included.

''There's a big problem in South Florida with finding affordable housing,'' said Registre, a broadcast writer. ``I'm paying a whole lot less renting a room than living on my own.''