Sky-high home prices are a boon to landlords

Rentals: The scarcity of homes for sale and high prices are forcing many would-be buyers to continue renting.

January 25, 2004|By Daniel Taylor | Daniel Taylor,SUN STAFF

Baltimore's rental market may get a boost this year from an unlikely source.

The record home sales that have pushed more renters to buy houses during the past three years may finally begin to help apartment owners recoup some of their lost business, experts predict.

Home prices in the region keep rising and have moved out of the reach of more renters, real estate professionals said. Also, the supply of houses for sale remains limited thanks to four-decade low interest rates and building constraints in most jurisdictions.

But renters, who have enjoyed tighter controls on housing costs during the real estate boom, likely will see their rent bills grow faster this year.

Of 70 major rental markets, the Baltimore metropolitan area will rank seventh in growth this year, based on an index that measures rents and occupancy rates. Baltimore was ranked 25th last year, according to Axiometrics Inc., the Dallas company that compiles the index.

The growth in the Baltimore rental market stems in part from renters being priced out of the housing market. In the Baltimore area, a stable job market and the demand for housing have created double-digit price increases for homes.

The supply of new housing has been limited in most jurisdictions out of government fears of unchecked growth. And the number of existing homes for sale remains about 8 percent fewer than this time last year.

"We've just had record housing production, and it's been driven by low interest rates," said Ronald Johnsey, president of Axiometrics. "We've had home prices rising, and so what that has done in some places, is make apartment housing very attractive."

Johnsey said Baltimore should expect a 3.8 percent growth this year in the index that measures occupancy rates and rents, compared with 1.9 percent last year. Nationally, the index figures were negative 0.1 percent last year, with predictions of 0.7 percent this year.

Axiometrics predicts that the average rent in Baltimore likely will increase 4.05 percent this year, having grown 2.3 percent last year to $909.57 a month. Nationally, rents fell 0.06 percent to $813.55 last year and are expected to rise 1.16 percent this year.

Occupancy rates are expected to stay near 95 percent in Baltimore this year. The national average is expected to fall below 93 percent.

Shelly Abrams of Baltimore toured rental apartments last week in the Inner Harbor. The Roland Park resident wants to buy a home but said she has faced difficulties in her search.

"I want to make sure I choose the right place," Abrams said. "And there's not a whole lot on the market right now."

Nationally, the rental market has been more sluggish in the past few years as owners of apartment buildings have had to compete with the lowest mortgage interest rates in four decades. The rates have allowed many renters to secure monthly mortgage payments that are as much or less than their monthly rental costs.

Some local rental agents said the Baltimore market has room for improvement, even though it has outperformed the nation.

"I'd say demand for renting has tapered off," said William F. Gebhardt, chief executive of W.F. Gebhardt & Co., which rents apartments in Baltimore. "Anytime you have low interest rates and people can buy houses so affordably, people that have been around 10 or 15 years go off and buy a house, and I can't blame them."

Jo Ann Hammond, a renter in Towson, is shopping for a townhouse and hopes to take advantage of the low mortgage interest rates, believing her monthly mortgage payments will be less than $800. Hammond hopes to buy a home for about $100,000. Her monthly rent is $900.

"The monthly payments on my home are expected to be much lower than the rent that I am paying," she said. "I made the decision ... because of the high rent and no return on the money that [is] going out every month for rent."

The average sale price of a home in the region was $228,328 last month -- a 17.36 percent increase from December 2002. Average sale prices grew by double-digits in every month but two last year when compared with the corresponding month in 2002.

Currently, mortgage rates stand at 5.64 percent for a 30-year fixed mortgage. The 2003 average was 5.8 percent. Rates are expected to average 6.1 percent this year.

Lawrence Yun, a senior economist for the National Association of Realtors, said low mortgage rates allow renters like Hammond to buy a house.

"When rates decline, people who could not qualify to buy a home with higher rates suddenly realize they can buy a home," Yun said. "As a result, the rental market has suffered because many renters switch over to the low rates of homeownership, leaving behind higher vacancy rates."

Cindy Conklin, a real estate agent with Coldwell Banker Residential Brokerage in Baltimore, said increased competition among apartment owners has forced landlords like her to lower rents.

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