John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... The overall vacancy rate for Denver-area apartments made a huge and unexpected drop in the third quarter from the second quarter, as I reported in a previous blog.
“The conventional thinking was that with the vacancy rate at 9 percent in the second quarter, and with the high unemployment and jobless rates, and the tax credits (for first-time home buyers), that rates would continue to go up,” Gordon Von Stroh, the University of Denver business professor who completed the third-quarter vacancy and rent survey told me this morning. The survey is sponsored by the Apartment Association of Metro Denver, Apartment Realty Advisors, the Colorado Housing and Finance Authority, the Colorado Division of Housing, D.A. Davidson & Co., Orion Real Estate Services, and Pierce-Eislen.
But instead of rising, the vacancy rate fell to 7.4 percent, the largest second-quarter to third-quarter percentage drop in recent memory.
“It was a huge drop,” said Lauren Brockman, principal of Orion Real Estate Services.
I asked why the $8,000 tax credit, scheduled to expire at the end of November, didn’t drive up the vacancy rates.
“We are seeing some of that,” Brockman told me. “But it’s not as prevalent as you might think. Two or three years ago, nearly everyone who was leaving our apartment units were buying a home. Today it is probably back to normal. People are just not going crazy taking advantage of the credit.”
It appears fairly likely that the tax credit will be extended until the end of April, with additional incentives being added to people who have owned homes for at least five years and are buying new homes.
While Brockman personally does not think that is a good idea, he said if unless there is a confluence of a vastly improved economy with the credits, they are not going to drive people out of their rental units into the arms of Realtors. In other words, don’t look for an exodus of renters to homes, at least not in the Denver area.
“Keep in mind that while the tax-credit incentives are out there, consumer confidence is not,” Brockman said. “You can give them all the tax incentives in the world, but if they are not confident they can retain the job they’ve got, they’re not going to buy a home.”
Also, renters no longer feel they are missing a chance to make a quick buck by buying today, as opposed to waiting, he said.
“The consumer has wised up to the fact that a single-family home while a good investment over a 20-year period, is not something you can buy and flip into a 20 percent profit. That is gone,” Brockman said.
The fact that Congress is contemplating extending the credit is a testament that the home market is still in trouble and needs help, he said.
A turn-around the the economy is the only thing that would convince a huge number of renters to quickly become homeowners, he said.
“It’s hard to tell the impact of an extension of the credits,” Brockman said. “It depends on the dynamics of the market. If we saw the country adding a million jobs each month and that trend continued for four or five months, than it would have a negative impact on apartments. But in the environment we are in – and I personally think that we’re going to have moderate to flat job growth for at least another 36 months, and then moderate wage inflation after that – I do not see the tax credit having a huge impact.”
Also, not all renters can take advantage of the tax credit, noted Terrance Hunt, a broker with Apartment Realty Advisors.
“Underwriting mortgage is much more strict than it was a couple of years ago, when anyone could get a loan,” Hunt said. “Even with the $8,000 tax credit, buyers are typically expected to bring some money to the table. Buyers are scrutinized about their job histories and qualifications more than they have ever been before. It’s not an easy process. And once you decide to buy a home, it has to appraise out and everything else. It is probably more difficult to buy a home than it has ever been.”
And if even if a rosy economic scenario comes to pass, it would help the Denver apartment market, which is not overbuilt like a Phoenix or Las Vegas, Brockman said.
“Since we are not building anything now, we would then have a shortage of apartments,” he said. “As more people entered the workforce, we would have more renters, as well as more home buyers.”
Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.
