Could it be housing prices are heading up, finally? Well, maybe, maybe not, but good news from CoreLogic, which announced that prices nationwide increased from March to April of this year. Although still early, some good news (for those selling at least). However, the rise in prices was not uniform throughout the country. Some states were still seeing enormous price declines. Leading the list in price drops was Idaho which averaged a 15.2% price drop from March. I’d say it must be those Idaho’ans leaving the cold weather to head south but Arizona certainly didn’t show much demand increase as its prices dropped by over 11%.
Although price drops seem like a bad thing, when price drops are combined with rising rents you’ve got an increasingly attractive investment. Combine that with record low interest rates and it really does not get any better for those who are looking to invest for the longer term. To help make my point, check out what Marcus & Millichap wrote for their 2011 National Apartment Report: (You can access the full report by registering here)
National Apartment Overview
◆ All 44 markets will post employment growth, vacancy declines and effective rent gains in 2011, confirming a sweeping recovery and expansion in the U.S. apartment sector above expectations. This year will mark the first across-the-board reduction in vacancy since at least 1990. This is driven by the release of pent-up demand in the aftermath of the Great Recession, lower turnover rates, falling homeownership and job growth.
◆ Apartment completions will total 53,000 units this year, 46 percent fewer than delivered in 2010. New supply will again fall critically short of demand, which is expected to reach 158,000 units. U.S. apartment vacancy will decrease 110 basis points in 2011 to 5.8 percent as a result, matching the decline recorded in 2010.
◆ As vacancy in 2011 aligns closely to pre-recession levels, owners will regain pricing power. Asking rents will rise 3.5 percent to $1,067 per month, while effective rates will increase 4.5 percent to $1,002 per month.
Amazing what happens when strong demand meets limited supply. The fact that you are still able to pick up single family properties in great areas for fire-sale prices is not rational! Eventually, the market will correct and those that got in now will have made a bundle, first off of the cash flow generated from holding the property and properly managing it, then later from the appreciation of the asset itself.
For a more in depth look at a property I’m currently working on, see my previous post on why you should invest in real estate.