John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... Buy or rent? Vote at end of this blog.
There likely will not be an exodus of renters leaving apartments to buy homes, which is expected to drive the Colorado apartment vacancy rate even lower than its current rate of 5.2 percent.
“I cannot imagine a scenario better than we have for jumping into housing right now, based on housing prices and interest rates,” said Ron Throupe, a professor at the Burns School of Real Estate & Construction Management at the University of Denver. “But it really hasn’t happened – concerns about employment and the economy trumps all of those other issues.”
Throupe’s comments came in an interview with InsideRealEstateNews.com, following the Colorado Division of Housing’s second-quarter report released today that shows apartment vacancy rates are the lowest since 2001.
Gordon Von Stroh, the University of Denver business professor, who has authored the report for the past three decades, said that a lack of construction and demand are driving forces behind the low vacancy rate.
“The first thing I would say is the lack of construction statewide,” Von Stroh said. “And I do think there is a significant pent-up demand for multi-family housing.”
Von Stroh noted that the last time the vacancy rate was lower, the population of the state was much lower than it is today.
“That’s one of the reasons I think there is pent-up demand,” Von Stroh said. “A lot of parents are anxious to get their kids out of their basements and into housing.”
But he agreed with Throupe that renters are not going to be leaving apartments to buy homes in droves, as they have in the past when mortgage rates dropped. Today, rate are hovering near 4 percent for a 30-year fixed-loan for qualified buyers.
“I was just talking to a nurse the other day who lives on the south part of town, and she just got a new job up north,” Von Stroh said. “She was telling me that if she lived in an apartment, she could have just moved into another apartment. Instead, she will be will be selling her home in a down market.”
Von Stroh said that he thinks apartment vacancy rates statewide could dip into the low 4s – ironically, the same level as mortgage rates.
“A number of communities already have vacancy rates in the 2 percent or 3 percent levels, which means they are basically full,” Von Stroh said. Others, he said, have higher vacancy rates only because they are poorly managed, have deferred maintenance, or are not being marketed properly. Those are potential “value-ad” properties for investors, he noted.
Record-low interest rates, as well as increased demand, are making apartment investments the preferred investment asset, not only in Colorado, but across the country, said Terrance Hunt, an apartment broker with Apartment Realty Advisors in Denver.
“Because Fannie Mae and Freddie Mac provide financing for apartments, interest rates are lower than other asset classes, such as offices and retail,” Hunt said.
Hunt said that he wouldn’t be surprised if the Denver-area apartment marking sees its apartment vacancy rate fall below 4 percent this year, probably in the third quarter. For seasonal reasons, the third quarter usually has the lowest vacancy rates.
“If our local economy sees any improvement at all, then apartment vacancy rates are going to come down,” Von Stroh said. Yet, he sees little on the national or local scene that will give the economy a boost.
“Let’s say there was another federal stimulus package and people got $1,000 from the federal government to spend, and I used it to buy a flat-screen TV,” Von Stroh said. “Where is it built? China. So really, the stimulus helps China, but doesn’t do much for our economy.”
Von Stroh said he also worries that even if more apartments are built in the Denver area and the state, consumers will not be earning enough to rent them.
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[...] metro area, where good rentals are getting really hard to find. According to John Rebchook at insiderealestatenews.com , “There likely will not be an exodus of renters leaving apartments to buy homes, which is [...]
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