Rental market reviving - There's growing supply of higher-end homes, although most can afford only cheaper units
This is the crazy time of year for Joan Sova's company.
Sova owns Son-Rise Property Management, which handles about 1,400 residential rental units. A significant portion of renters are college students, and at this time of year it's a scramble to get them signed to leases and into units before the school year begins.
"We just finished with the mass exodus, and now they are coming back," Sova said. "Summer is the busiest time, and this is one of the most active years I've ever seen."
While college students keep local property management companies busy during the summer, at least they are a stable market because most who live off campus will rent, Sova said.
The renters who aren't college students have been less predictable. Renters, ranging from working families to retirees, have been under a variety of supply-and-demand influences. This includes a red-hot home-buying period, which has created a soft rental market in recent years, said Sandi Jones of Windermere Management by Ebright-Wight. Jones' company handles about 1,000 rental units, about 250 of which are single family homes.
"In the past few years more people have been able to qualify to buy a home for a variety of reasons, including low interest rates," Jones said. "However, I think we're now entering a new phase. Interest rates have been rising, and home prices in Whatcom County are now at a level that renting is becoming a better financial option for a lot of people."
If the renter market does indeed become stronger, it is coming at a good time for some property owners. One trend that both Jones and Sova have noticed is the growing supply of the higher-end home or multifamily unit.
"Right now I'm seeing more higher-end units where the owner is asking for $1,200 a month, but they are only getting offers for $900 a month," Sova said.
She believes the problem with higher-end rentals is that the job market doesn't support them. The medium- to lower-end market, where rentals are in the $500 to $600 range, is doing quite well because a significant number of families work in retail and service-industry jobs.
"However, there just aren't enough jobs here that would allow a family to afford a place in the $1,000-a-month range," Sova said.
Why are there many more higher-end rentals available? Jones said she's recently noticed more investors who are planning to retire in Whatcom County have been purchasing homes five to 10 years ahead of retirement because they expect home prices to keep rising.
"They want to get a good price on a retirement home while they still can afford it. So now there are a significant number of higher-end homes out there where the owners are still a few years away from moving to Bellingham, but they need to rent it out," Jones said.
FROM APARTMENTS TO CONDOS
In recent years a record number of multifamily housing projects have been constructed in Bellingham, leading to what some consider an oversupply in the market, Jones said.
One trend that has dampened that supply is converting apartment construction projects into low-priced condominiums, in response to the rising prices for homebuyers. An example of this is Darby Estates, which was originally slated as an apartment project before the developer changed course and made the units condominiums.
"Converting apartments into condominiums has been good for rental property owners, because it has taken some of the rental units out of the market," Jones said. "However, it has also taken potential renters out of the market by having this buying option."
Sova said that while she has noticed more new units on the market, the ones in the middle- to lower-end price range have been filled quickly.
"It's a very active market right now, with people coming to Bellingham from all over the country," Sova said. "The new rentals that are priced right and in a good location are snapped up quickly."
PRESSURE OF VACANCY RATES
There are a variety of ways to measure vacancy rates of rentals, from census tracking to surveys. In a survey that included other local property management companies, Jones estimates that countywide vacancy rates for apartments and homes were just less than 10 percent last year. In her opinion, a balanced market would have a vacancy rate of about 5 percent. She said the vacancy rate last year for Ebright-Wight was 4.53 percent.
If property management companies can't keep the vacancy rate low, the company loses clients. To compensate for this when there are plenty of units available, management companies offer enticements to attract renters.
"Sometimes it can be a free month's rent, but it could also be something like a free TV or DVD player," Jones said.
It also works the other way when supply is tight. If there aren't many rental units available, companies can ask for higher rents or require longer rental agreements.
If home prices and interest rates continue to rise, the expectation is that the rental market will continue to strengthen.
There are already signs that it might be taking place: The number of homes sold in Whatcom County in the first half of the year is down 13 percent compared to the same period last year, while median and average prices have risen, according to a recent study by Lylene Johnson, a real estate agent for The Muljat Group. Sova noted that the number of homes for rent in The Bellingham Herald classified ad section dropped from 164 at the end of July to 133 in mid-August.
"It should continue to be an active market, although I think many units that need to get the highest rents will continue to sit," Sova said.