BEND Ore. (CNN/Money) – Landlords haven't had it easy over the past few years. A weak economy and an attractive housing market sent vacancy rates up and rental prices down.
In 2003 rental prices declined nationwide, according to M/PF Research and Torto Wheaton Research. Prices fell 6 percent in the San Francisco Bay Area and more than 5 percent in Denver. The national vacancy rate, meanwhile, reached 10.4 percent during the first quarter of 2004, its highest level since the Census Bureau began tracking it in 1960.
Now, however, landlords may be getting some relief.
"Rental markets have appeared to turn the corner after more than two years of declines," said Gleb Nechayev, an economist with Torto Wheaton Research. Nationally, rents are up 0.5 percent so far this year. In hard-hit rental markets, such as San Francisco, rents are still declining, though at a slower rate.
"Growth is negligent, but positive nonetheless," said Nechayev, adding that the slow recovery in the rental market reflects slow improvements to the economy overall. At the same time, interest rates have remained low, meaning that buying is still more attractive than renting in many markets.
After a recent survey of builders and property owners, the National Association of Home Builders (NAHB) concluded that demand for apartments is stronger than it was the same time last year. To track supply and demand, the NAHB rates responses on a scale of 1 to 100 with 50 representing a neutral response. Based on that index, demand for the average rental property was 50.6, a 7-point increase from a year ago.
Oversupply is still an issue in some markets, however. The NAHB's index tracking the number of apartments jumped more than 10 points between the second quarters of 2003 and 2004 to 64.
At the same time low interest rates prompted renters to become homeowners, real estate investors flooded the market with new rental properties. Although housing has cooled in some places (See "Leaving Las Vegas") rental prices won't improve significantly until supply levels off.
"As interest rates slowly rise, both the for-sale and rental multifamily sectors will approach new points of stability," says NAHB chief economist David Seiders in a release.
Nechayev, meanwhile, is forecasting a slow recovery during the remainder of 2004 and a full recovery in the rental market during the second half of next year.
"Essentially the recovery is on track," he said. "It's just a matter of slow and steady improvements."