It also is taking longer to find tenants for homes. The number of days on the market for single-family rentals and similar properties increased from 45 days during the fourth quarter of 2008 to 53 days during the fourth quarter of 2009. Detached single-family rentals in particular faced a two-year high of 62 days.

Federal tax credits turning renters into buyers

“There is no one economic factor behind the increase, but some of the people that had been in single-family have purchased homes to take advantage of the tax credit,” said Gordon Von Stroh, Professor of business at the University of Denver, and the report’s author. “But the unemployment rate remains above last year’s rates, and that will tend to keep vacancies up.”

The tax incentives to buyers “is the other element,” causing fewer people to buy homes, but it not as great of force as it was last fall. The big rush is over,” said Robert Alldredge, principal of Jericho Properties. “Last year, when they thought the credits would expire in November, we saw a big rush of people leaving rental homes to buy houses,” he said. “And those were our most-qualified renters. They were sort of the cream of the crop. But we have not seen as much of that this year. It’s just too hard to qualify for a loan. I think a lot of the renters who were qualified to buy, already have taken advantage of the program.”

The  $8,000 tax credit for first-time home buyers, which requires a home to be under contract by April 30, and closed by the end of June, is not attracting buyers to condos and townhomes, for the most part, he said. There also is a $6,500 tax credit available for qualified homeowners, some of whom may want to sell their home and buy a smaller one, as well as move up.

“The tax credit incentive is driving more toward single-family homes and less than condos and townhomes,” Alldredge said. “People want house and if the government going to give you a hand out, some people will take it, if they can qualify for a loan.’

Susan Melton, the broker/owner of Assured Management in Lakewood, agreed with Alldredge.

“A majority of the good tenants who are taking advantage of the tax credit, want to move into a single-family home, and not a condo or a townhome,” she said. “It had a big impact on us at the end of last year, but we have not seen very much activity so far this year. I think the majority of people who qualified for the program have already taken advantage of it.”

Single-family homes rule as rentals

Single-family detached homes also are more attractive to renters, Von Stroh said.

“The overall vacancy rate has run up to 5.5 percent,” Von Stroh said. “But when you start looking specifically at the data, single-family home rental vacancy rates are about the same,” Von Stroh said. “A year ago, single-family home vacancies were at 4.5 percent and now they are at 4.7 percent. But condo rentals were at 4.5 percent and are now at 6.1 percent. And duplexes were at 4.4 percent, and are now at 7.7 percent.”

Melton  said one reason for that is because if a family loses its homes in foreclosure, it wants to remain in a rental house, and not a condo or a townhome. ”If you look at the units with five bedrooms or more, there is a zero vacancy rate,” Melton noted. “One-bedroom units have the highest vacancy rates.”

The metro-wide jump in vacancies in single-family rentals and similar properties was driven by increasing vacancies in Denver County and Arapahoe County where vacancy rates were at 6.8 percent and 5.7 percent respectively. Vacancy rates fell in Adams County and Douglas County. Rates were flat in Jefferson County and in the Boulder/Broomfield area.

Vacancy rates for all counties surveyed were: Adams, 4.1 percent; Arapahoe, 5.7 percent; Boulder/Broomfield, 3.8 percent; Denver, 6.8 percent; Douglas, 3.0 percent; and Jefferson, 4.7 percent.

Rents still rising

In spite of rising vacancy rates, average rents continued to climb.

The average rent for single-family and similar properties rose to $1016.77 during 2009’s fourth quarter, rising from 2008’s fourth quarter rate of $995.24. 2009’s fourth quarter’s average rent is the highest average rent yet recorded for the fourth quarter.

“The fact that average rents continue to rise shows that renter demand for these properties remains relatively high in spite of a soft overall rental market and poor job growth,” said Ryan McMaken, a spokesperson for the Colorado Division of housing. “Owners can afford to raise rents a little since many people still prefer the roominess of a single-family home to an apartment, but today, fewer people view buying a single-family home as the fail-safe purchase that they once did.”

Average rents for all counties were: Adams, $1024.79; Arapahoe, $995.23; Boulder/Broomfield, $1631.30; Denver, $952.27; Douglas, $1372.91; and Jefferson, $974.90.

It’s the mix

But Melton isn’t seeing rental rates rising.

“If you look over the last 10 years, the overall rental rates have not increased that much,” she said. “Part of the reason rates are up has to do with newer, bigger units entering the rental market from people who either can’t sell their houses or want to wait until they can get a better price. These homes are not only bigger, but have less wear and tear than a home that has been in the rental pool for the past 20 years, so they get a higher price. But overall, I would say rents are flat.”

The Colorado Statewide Vacancy and Rent Study is released each quarter by the Colorado Division of Housing. The report is available online at the this link.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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For example, the report shows rental rates rising in the Boulder/Broomfield market.

“But rents are not increasing, if you compare the same product over the same product,”  said Allredge, of Jericho Properties Realty in Lakewood. “The product is simply more expensive in those markets. It’s all about the mix. Rents are soft throughout the metro area.”

And yet, overall, he thinks that the worst may be over for the housing rental market.

“I would say I am cautiously bullish,” Allredge said. “I think we all agree from a landlord’s perspective, we are showing signs that we are heading in the right direction.”

Although the overall third-quarter vacancy rate for housing rentals rose to 4.6 percent from  atypically low 3.4 percent in the third quarter 2008, it is down from 5.2 percent in the second quarter.

“It’s still below 5 percent, which is considered good, and it is hard to imagine it can fall much below 3.4 percent, so it is not shocking it is up from a year ago,” said Ryan McMaken, spokesman of the Colorado Division of Housing, which released the report authored by University of Denver Business Professor Gordon Von Stroh.

Although vacancy rates typically drop from the second quarter to the third quarter for seasonal reasons, the overall trend of low vacancies is positive, Allredge said.

“The market is really pretty flat for rental rates,” Allredge said. “But I think there is reason for some optimism with some job formation and with unemployment dropping, Denver is a bit ahead of the curve compared to the rest of the country. We never became as overbuilt as other parts of the country did. The laws of supply and demand really do work, if you let them.”

Allredge also said that the so-called “shadow market,” seemed to have peaked last year and early this year. The shadow market, discussed in an earlier blog, is a hard-to-count inventory of homes. Part of the shadow market comes from people unable to sell their homes who are renting them, and some of it is owned by banks that have yet to put them on the market.

“That is the majority of our new product in our (rental) portfolio,” Allredge said. “We get very few properties bought by investors with the idea of immediately putting them into the rental pool. But I do think the shadow market had a bigger impact last year and the first part of this year. Foreclosures seem to be softening a bit.”

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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