To Rent Or Not To Rent; Rising Interest Rates Boosts Need For Apartment Rentals
Three years ago interest rates were at an all time low, and many people were taking advantage of it: buying a home instead of renting. But the buyer's boom appears to be coming to an end as interest rates continue to rise. And that's causing the Columbus rental market to be the tightest it's been in years.
This time of year is likely the busiest season for apartment companies. Future college students are scouting out places to live, and recent college grads are looking for something nicer. But with interest rates rising fewer people can afford to build or buy homes. And that means higher apartment occupancy rates and fewer choices.
Rob Vogt is a partner at Vogt, Williams and Bowen, which studies real estate market feasibility in Columbus and around the U.S. Vogt said up until about 2002, the apartment vacancy rate in Central Ohio was fairly low. But he said that began to change when job growth slowed.
"I think in 2003 we probably hit our highest vacancy rate in Central Ohio that we had in probably 20 or 25 year, which was in the vicinity of 10 to 11-and-a-half percent across the city or across Central Ohio," Vogt said.
Vogt said some areas even saw 15 and 16 percent vacancy rates. And it was during that time interest rates became the lowest in years, making it less likely for some people to rent.
"That encouraged many, many young people to, rather than rent, to go ahead and buy a house, or condo. And folks like Lifestyle Communities offered a very affordable condominium unit that essentially folks could get in and buy for the same amount that they could rent for. So why not? Why wouldn't you buy?" Vogt said.
Vogt said that's when it became the norm for apartment companies to offer incentives to get people to move in, such as two months free rent, no security deposits or free microwaves.
Meadow View Apartments manager Cassandra McDonald remembers several years ago when fewer people were renting.
"Three or four years ago when the interest rates where like at five percent, and obviously it's not that low right now, I could remember occupancy being 91, 92 percent in the summer when you're typically 96 to 99 percent occupied," McDonald said.
But with interest rates increasing, that gives more people an incentive to rent, and to wait and see if rates will decrease. And that trend seems already to be taking hold. McDonald said fewer people are moving out.
"We have our fair share, but not as many as before hopping on to building homes and doing all the buy downs and all that," McDonald said.
And if you want to get into Meadow View, you're going to have to wait until at least October. And remember the move-in incentives?
"Actually, up until probably a month-and-a-half, two months ago, we were doing like free move-in prorate, one month free. You know, they've done various specials here. Back a couple years ago we were doing two months free with a 14 month lease where I was at, or one month free and a free washer and dryer. And that's just crazy. So, here we're not giving away anything except a waived application fee of a $25 value," McDonald said.
But that does not mean you'll see no vacancy signs everywhere. Vogt said that's not likely to happen.
"It's still a renter's market out there. There are still some good deals out there. We still have an adequate supply of apartments. I think once these units begin to fill up and we get to an occupancy rate of 96, 97 percent, where we were at the end of the last decade, then we'll begin to see some rent increases," Vogt said.
But don't worry, Vogt said that's not likely to happen until the middle of 2007.