ARE CURRENT RENTS SIMPLY A SEASONAL ADJUSTMENT OR ARE THEY INDICATING A TREND?
In October I emailed out an update to my personal clients reviewing results from the recently released 3rd quarter vacancy report.
In synopsis my observation was that although vacancies remained low through the 3rd quarter, rental rates did not substantially increase, in fact in the case of the 3-bedroom single-family properties in Ada Co. average rents dropped from the first quarter high of $1,339. I proffered the suggestion that we might have reached a rent tolerance ceiling based upon average local wages.
Several clients emailed me back with their thoughts on the matter. Unfortunately, lack of time prevented me from engaging in ongoing communication on an individual basis. But I’d like to share the input I received with the rest of our client community:
“Another possibility for the decline in rental prices in an environment of decreased housing supply (and my opinion of its cause) is that there are so many new multi-family units coming on the market that landlords are pricing defensively (not raising rents) to attract and retain tenants rather than risk rising vacancies in the face of increasing competition from new units, rather than we have reached a rent tolerance level for the average Treasure Valley tenant. Supply and demand dictate pricing of course, and demand is high so people will have to pay up or do without. Yet savvy landlords will be careful not to overprice as the supply begins to outstrip current demand. Just my two cents.” Mike J.
“I guess a deeper analysis (as well as metrics) are needed to reach any specific conclusions. But I do have some questions based on the limited data:
- There is a 50% jump in multifamily managed units between Q1 and Q3 in Ada. Does this increase reflect new properties coming online or just more existing properties being managed by the folks responding to the survey? If there's new multifamily / apartments coming online, then renters may be migrating to them due to higher single family rents. We don't see this same jump in units in Canyon, where rents remained stable.
- Is RMA seeing the same as what Southwest Idaho Chapter of NARPM is reporting?
If I had to take a wild guess, I'd say these reports now reflect weaknesses in methodology. Although the numbers in absolute terms are correct (although that can be questioned depending on distribution of properties throughout each county for weighting) they may want to track additional factors to determine correlation. Additionally, I wonder if seasonality should be taken into account (at a minimum Q3 to Q3 comparisons).” Mike A.
“Thanks for this information Claire. I actually saw this report earlier in the week and thought the drop in rental rates was interesting and definitely something to continue to watch.” Sarah T
“Yes, higher wages in Idaho are long overdue!” Yvonne T.
“Just seems counter to basic economics. Unless – as I infer from your message – that the market has outpriced itself.” Chet J.
“Do you think they are going to smaller homes to rent, or are owners forced to lower their rent demands? I notice long-term leases around Cascade; that was indeed the case. Average incomes put a cap in terms of rental income.” Randy R.
“Also I would like to point out that another factor in stable rents in a tight market is the lack of unbridled greed with property owners, who show compassion for their tenants.” Darlene O.
“I live in the North End, and have watched rents double since 2011, even without much increase in wages. I wonder how these renters can pay these rents. I agree with your hypothesis that rents have gotten so high, that they just can't go any higher without an increase in wages to support them. With the so-called booming economy, it's a real mystery why wages haven't really gone up that much. It's also interesting that 3-bedroom single family residences have had the sharpest slowdown, with an actual decrease in rents recently.” Darren R.
Although rents have dropped slightly, we need to remember that the economic outlook for the Greater Boise Valley remains very strong. We continue to see heavy incoming migration of population from western states, with the top 3 in 2016 being California, Arizona and Montana. Word is out on the street that Idaho is a favorable place to do business, so we are attracting major employers who are relocating corporate offices and production plants to the Boise area. So, there isn’t a concern about the need for housing, it is more a question of how much rent can the tenant market bear? Also, as one of our clients pointed out, the data we are using to arrive at these conclusions are limited and have variables that could skew results. So it would be wise to use the quarterly reports as a rent range guideline, but not necessarily as reliable data upon which to make investment decisions.
NARPM quarterly vacancy reports, (which include average rents), may be viewed at our BLOG
(The maintenance updates only apply to those of you who have pre-ordered these preventative maintenance services. If you didn’t opt in for a service you read about in this newsletter, and would like to schedule a service, just email Spencer@rentalsinboise.com to let him know.)
The following pre-ordered services will be completed in November and will be reflected on your November statement:
- Anti-Weed application
- Tree Trimming & Shrub Pruning
- Gutter clean out
- Sprinkler blow out (we perform this service for every property unless the owner has specifically opted out)
The following service orders are continuing through November:
- HVAC System Service
- Dryer Vent Blow Out
RMA uses industry specific software that allows us to send accurate timely statements on a monthly basis. The software package is designed specifically to manage single-family homes and small apartment properties such as duplex units and fourplex units. At tax time, people usually spend a lot of time looking for all the records of income and expenditures they need. We provide you with a 1099 and a year-end statement with all the details and summaries that you or your tax preparer will need to fill out your schedule E. If you ever pay for products or services directly, just let Karen in our accounting department know, and she can create a journal entry to reflect your expense so that it will be included in your year-end documents.
If you ever have questions about your statement, please contact Karen@rentalsinboise.com.
Our November Tenant Newsletter informed our tenants of Idaho Power’s FREE kit for energy saving. Good for your tenant’s budget and good for our environment! The reminder list remained lengthy this month with a winter preparedness to do list.
If you’re interested to read the tenant newsletters, you will find them on our website.
What Are You Interested In?
This newsletter is intended as a resource and communication platform for you. If there is a topic, relevant to the management of your investment property, that you would like me to write on, please let me know!