I think that most market observers would agree that the worst of the great Real Estate/ Credit recession is behind us as of this writing (May 2013). Both single family housing starts and prices are in significant rally mode. The mood in general is one of recovery and optimism here in Idaho and most markets around the country.
Apartment owners are absolutely jubilant as rental rates have increased and occupancy levels are at or near 100% for the first time in decades.
But wait a minute! Let’s step back and take a look at what is coming our way in the near term. Consider the following local data on new apartment construction permits:
Suffice to say that markets are brutally efficient and the supply and demand equation inevitably equalizes as you can see from the data.
In addition to the avalanche of new apartment units in the pipe-line, data shows that buyers now believe that our Real Estate recovery is well underway. Furthermore, most believe that housing prices have bottomed out. Consequently, there will be an accelerated pace of purchases of single family homes in the near term, especially while interest rates remain at today’s bargain levels. More house buyers equal fewer tenants to occupy apartments!
So what to do? Consider the following:
It may make sense to sell that marginal building (the one you’re not that proud of) if your hold plan is short term. On the other hand, if your hold plan is long term, you may want to use the fruit of the current, “good times”, to improve your units to be as competitive as possible as the market begins to stabilize.
Tenants will have many more choices in the near term. Be smart and prepare for them!
