DFW Divergance - Apartment and Single Family Rentals

The latest news is that apartment vacancy rates are up. The latest news reported by Steve Brown of the Dallas Morning News is that apartment vacancy rates in DFW are now over 8%. The most common reason given for this trend is that job growth is down so more people are sharing accommodations and/or adult children don't have jobs so they are not moving out of their parents home.

We have not seen a similar trend in our single family portfolios. Our overall vacancy rates are the lowest they have been in eight years, with a vacancy rate of less than 5%, which is what we consider full occupancy since about 5% of our tenants move out each month. Our January leasing activity is very strong, both in the amount of showings and actual leases. I have polled our local competitors and I have similar positive results from them. Our current vacancy rate has caused us to push rents up wherever possible and also be more agressive in removing tenants who default on any of their lease obligations.

Why the divergence from apartments? Part of the reason is there have been relatively few single family homes added to the rental pool in the past year. Investors have not been adding to their portfolio so supply is not keeping up with natural growth in demand as a result of the increasing population in our markets. Most of the growth in the single family rental pool is from reluctant landlords sitting out the currently soft sales market. This lack of growth in single family rentals is a stark contrast to the published net addition of apartment units (over 12,000 units in DFW alone) in 2008.

Let me finish with the same thing I always state - all real estate is local. I had a client call and tell me to not raise the rent on a tenant because everything they have been reading says that rents are going down and vacancy rates are up. Telling us not to raise rents when the market allows is like telling your stockbroker to return the stock dividend to the company you own shares in because you heard the company was having a rough quarter.

Remember, our compensation at Prime Properties is directly tied to an occupied house with a good tenant, paying rent. The more rent we can get for the home the more money we make. Our goals are to minimize turnover, but also to get as much rent as the market will bear bringing the most benefit to our clients and ourselves. We spend our full time life understanding how to do this for each specific house we manage, so if you own two houses in the same town, we might tell you to raise the rent on one house by $20.00/month, but on another $50.00/month. So please, read the news and educate yourself, but it is very important to rely on our experience on how to get the best performance on each individual house you own because we are much closer to the issues on each house, in each neighborhood, in each town, in each state.

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November Numbers - More Job Growth in Texas - Again!

The number of jobs and households continue to increase in Texas. This is counter to all the other bad news around the country. As I said in my last post I do not expect this job growth to continue in Texas - -totally contrary to the economic hardship in other parts of country but for now the best place to have a job opportunity, or a rental property, is in Texas.

Statistics from the Bureau of Labor Statistics (http://www.bls.gov/news.release/pdf/metro.pdf) showed Texas added a net 33,400 more jobs from October 2008 to November 2008. 10,600 of these new jobs were in the DFW area and 3,200 of these jobs were in the Austin/Round Rock area.

The unemployment rate in Texas continues to increase which indicates people are moving into Texas even faster than new jobs are created and households are also increasing at a rate faster than new housing is being created.

Our Oklahoma and Louisiana markets are not moving in the same direction as Texas. If you read the report at the link above you will see that Tulsa, Oklahoma City, Baton Rouge and Lafayette have all had net job losses from October to November. The job loss has been small but the economic downturn is starting to affect these markets. Households/population in these markets continue to grow as people migrate from far more economically stressed areas of the US, but the jobs may not be as readily available as in Texas.

So what does this mean to Prime Properties and our clients?

The good news is that vacancy rates are down on rental homes in all of our markets! We see this positive trend even though vacancy rates are starting to increase in apartments. So apartments and single family rental markets are currently diverging. Right now you get more rental home for your dollar than you get apartment for your dollar so we see more people moving from apartments to single family homes, and these people are competing with 1) ex-homeowners displaced by foreclosures and 2) families relocating from other parts of the country but not ready to buy.

Please remember we deal with many micro-markets, so your specific home may not always be able to benefit from these favorable trends. We are using the current conditions to 1) increase rents where we have found our homes to be under-priced and 2) we are removing marginal tenants and replacing them with new tenants. Every landlord deserves to have a tenant who will follow their lease obligations, so we are using the current market to upgrade tenants. The higher vacancy rates in apartments means that the tenants we displace will have a place to go, one which will be more appropriate to their needs and means.

If you have any questions about the current macro or micro market trends and how it may impact you, please feel free to ask me, just send me an email at KMartin@PrimeProp.com. If I cannot answer your question I will put you in touch with the best person to provide you quality information.
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