Rental Market Opportunities Under Review

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Rent increases reported across the country and outlooks predicting the same for the near future also indicate the window of opportunity in rental-housing investments is about to open up in some local markets and may start to close soon in others. 

It is the best opportunity in the last 30 years for investors looking to accumulate rentals, says David Hicks, co-president of HomeVestors of America, a Dallas based cash homebuyer known as experts in buying and rehabbing “ugly houses.” 

Data from over 300 local markets reviewed by HomeVestors and Local Market Monitor, Inc. show that approximately 14% of single-family homes in the U.S. are maintained as rental properties.

And according to the Best 100 U.S. Markets to Invest in Rental Property, a quarterly report developed by HomeVestors and Local Market Monitor to provide local market rankings based on the expected returns on single-family homes from 39 states and the District of Columbia, during the first quarter of 2012 California emerges as the best rental market investment opportunity in the nation.

The nation’s largest state shows “a commanding lead” as 12 California markets appear favorable.

Florida ranked second with nine markets, followed by Texas with seven, North Carolina with five, and New York, Ohio and Tennessee with four high opportunity markets each.

"There are good opportunities for investors in every one of the top 100 markets," Hicks says, yet investors need to take into account various market dynamics as they decide when is “the ideal timing to enter the market.” For example, job growth is a key indicator of a stronger rental market since it leads to “strong growth rates and higher risk-return premiums,” he said.

To determine “an opportune timeline for investors” the quarter rankings of the 100 Best U.S. Markets are combined with input about local job growth rates and price fluctuations.

Data show several Florida markets: Tampa-St. Petersburg, Daytona Beach, Fort Myers are worth considering in the short-term. Similarly, Hicks recommends Phoenix-Scottsdale (AZ), Bakersfield (CA), Boise City (ID), Warren (MI), Grand Rapids (MI), Rochester (NY) and Dallas/Fort Worth (TX) currently attractive as investment markets because, “prices are close to a bottom” and the local economies are growing well.

"Timing is everything,” agrees Ingo Winzer, president and founder of Local Market Monitor. “Investors don't need to jump immediately,” but wait for the best timing, when trends are in their favor, he warns, because while opportunities are present from Honolulu in Hawaii to the smallest state, Providence, RI, some markets are bound to become more attractive to investors only in the long-term.

In Winzer’s view some markets that have longer-term investment potential worth waiting for until next year, include Las Vegas and Atlanta where home prices continue to fall.

Findings from the individual markets tracked by the FNC 30-MSA composite index, show that in 2011 Atlanta had the worst record of price declines among the country's major housing markets, down 10.2% by yearend, followed closely by Las Vegas where home prices fell nearly 10% during the year.

Other local markets with high long-term potential are: Reno, Detroit and Orlando, Ft. Lauderdale, Sarasota, Jacksonville and West Palm Beach in Florida.

State outlooks also indicate continued depreciation in many markets.

The CoreLogic January Home Price Index shows national home prices declined year-over-year by 3.1%, 1% compared to December, dropping for 6 consecutive months. The five states with largest peak-to-current declines in home prices including distressed transactions remian: Nevada -60.1%; Arizona -50.8%; Florida -49%; California -43.6%; and Michigan -43.2%.

Slow improvements in price declines are not far from bottom and nearly at the same levels they were 10 years ago, said chief economist for Corelogic, Mark Fleming.

Favorable trends for rental housing investors, Winzer says, include growing economies that force rents up and persisting devaluation due to oversupply and inflation, “which just a few years ago was close to zero,” but is running between 3% - 4% and is expected to increase to 5% in the next couple of years.

Since rents keep pace with inflation, Winzer argues, “we're in a unique position” where current losses in home prices will turn into rapid increases in the future, while rents are boosted by higher demand and “government-sponsored inflation."

The prolonged crisis and continued uncertainty for the future appear to be a driver of new indices and sources of rental housing information.

Rental data is an important indicator of housing market strength, as well as of its recovery, says Michael Simonsen, chief executive of Altos Research, a Dallas based provider of real-time real estate analytics that in December 2011 added Rental Intelsm to its analytics.

The report provides insights on the US housing and apartment rental market, asset valuation, deposition and resolution through reviews of approximately 700,000 available rental units that represent 70% of the US homes and apartments for rent that hit the market each week, tracks active rental inventories, pricing, and unit characteristics.

Local rents “add a powerful component to both valuation and disposition strategies,” including cash for keys, short sales offers and workout decisions, Simonsen said.