The scorching high prices in the real estate market, combined with builders aggressively pursuing new projects, has led to rental gluts nationwide and more pronounced gluts in extremely popular cities like Seattle.
A new report from Bloomberg confirms that Seattle is leading the charge in a rental slow down that is taking over the entire United States. According to Bloomberg, the median rent in Seattle - one of hottest and fastest growing rental cities of years past - has not budged in July. This came after a 5% increase the year prior and a 10% increase the year before that.
Previous aggressive increases in rent prices led to a pick up in housing and condo projects in the area. But now, just as these projects are nearing completion, it looks like the market may have reached an apex, where supply is outgrowing demand.
Aaron Terrazas, a senior economist at Zillow, told Bloomberg: “This is something that we first started to see two years ago in New York and D.C. A year ago, it was San Francisco and most recently, Seattle and Portland. It’s spreading through what once were the fastest growing rental markets.”
This glut has resulted in tenants being able to ask for concessions and getting better deals in real estate heavy areas like New York City and San Francisco. Tenants are also getting the benefit of a higher quality of living, as luxury apartment projects are now desperately seeking out renters.
For example, Bloomberg tells the story of a realtor last month who helped his clients in Seattle find an apartment that threw in a year of free underground parking, a concession worth $175 a month. Another great example is Batik, a new luxury apartment building in Seattle. It is 195 units and has views of the skyline. They are offering tenants gift cards worth as much is $6,000 to entice renters.
Lori Mason Curran, spokeswoman for Batik landlord Vulcan Real Estate told Bloomberg: “There is tremendous competition for tenants. Over time, we think long-term demand is solid. But there is so much supply tamping down rent growth right now.”
Concessions are mainly a result of blooming construction, not just in Seattle, but across the United States.
For instance, multi family apartment construction over the last couple of years has been at levels not seen since the 1980s, according to Bloomberg. The housing and condo projects that are opening now were the ones that were conceived years ago while rents were soaring mid to high single digits, at the least.
As the market hits an apex, the most expensive cities are slowing down the most: names like San Francisco, Seattle and Portland, for example:
Another interesting fact is that for the first time since 2010, it’s now reportedly easier to make money by renting an apartment and investing in the market instead of buying property to own - another unintended consequence of a monetary policy that is based around keeping the stock market moving up at all costs.
Ultimately, this could all be bad news for home sellers. As the number of renters picks up, home prices may also start to need to move lower to entice remaining homebuyers.
We reported just 5 days ago that the average rent across the U.S. had hit all time highs.
According to the latest report from RentCafe and Yardi Matrix, which compiles data from actual rents charged in the 252 largest US cities, fewer than expected apartment deliveries this year increased competition among existing units, pushing up the national average rent by another 3.1% - the highest monthly increase in 18 months - to $1,412 in August, an all time high.
The rental market topping out could wind up being reminiscent of the stage that was set prior to 2008 and the global financial crisis. While the Bloomberg article correctly notes that levels of speculation and outright fraud are likely not as high as they were in 2007/2008, it doesn’t necessarily mean that we won't a bubble burst of some magnitude in the real estate industry soon.