On the front page of USA Today’s February 5, 2007 edition was a story titled Renters will dig deeper in 2007. The gist of the story was that with scarcity of housing in many parts of the country combined with the fact that rental home owners had to pay more for those units renters were going to see an increase in their rents this year beyond inflation. In fact, the article says that rents are 14% higher since 2004 while income has grown only 4%. Hmm, I smell a problem for many people.
And here in the suburbs of Kansas City we too have a situation in which I believe rents are beginning to firm up and, in many cases, beginning to ease up from where they have been for nearly three years. But overall, I believe we still have balance in the rental market.
How did we get here? For the past three to four years rents have been soft because the best prospective tenants were also the best prospective home buyers. With a mere $1,000 or $2,000 invested (not too much more than a security deposit) a previously good tenant could now be a homeowner. This placed a downward pressure on rents because more landlords were scrambling for an ever decreasing pool of qualified renters. Investors were still buying income property but they weren’t getting the rents they needed to make a good investment a great one. Cash flow suffered, in most cases.
However, now foreclosures are at record levels in the Greater Kansas City area. Lenders are beginning to look twice at some borrowers and with creeping interest rates many tenants are happily remaining tenants. Plus, with the boom we’ve had over the last five years anyone that wanted to move has probably done so. Which brings us to where we are today.
There are still some neighborhoods with an unusually high vacancy rate. I notice them most in the outlying areas of Kansas City like Grain Valley, Liberty and some parts of Wyandotte County. But here in Johnson County it is not unusual for me to drive through a “rental” neighborhood and see one For Rent sign for every 75-85 units. And that is a pretty darn good situation.
I think that there is still enough competition to keep rental rates from escalating more than 1%-3% this year. But overall, in most parts of the KC area and Johnson County, especially, I see a pretty good balance. Tenants have enough choices to make good decisions and Landlords are able be a little choosier than they have been in the past. Slashing rents and offering drastic incentives is probably a thing of the past. Raising rents 5%-10% seems out of the question…at least at this time.