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A Rising Rental Market Signals Housing Recovery?

According to a story in the Los Angeles Times, new data show high demand for rental housing is an early indicator of a housing market recovery.

We’ve been reporting for months that the foreclosure crisis was creating new households of renters, who are putting a squeeze on markets where little to no new construction is taking place.

A stronger job market is also contributing to demand for rental houses and apartments, as the newly-employed are able to move into their own housing, rather than doubling up with roommates, family or friends. A third group is limited to renting by difficulties in obtaining a mortgage, due to stricter lending guidelines.

The chief economist of Zillow, a real estate website that tracks rental housing and home sales, said that while home prices declined 4.6% nationally from January 2011 to January 2012, median rents actually rose 3% in the same period. In California, some markets saw flat rents, while Orange County rents increased 13.2% in the one-year period. One factor for Orange County’s big jump is a stronger employment market—unemployment there is 8%, compared to 11.8% in Los Angeles.

Other economists speculate that rising rents are a result of damaged credit from the housing crisis, which can mean tenants are required to pay a premium to secure a lease.

Investors are buying up foreclosed properties, including a recent announcement of a $450 million fund established by Carrington Holding Co. of Santa Ana, which is intended to buy distressed single-family homes to convert to rentals And the Obama administration is ready to make good on its plan to sell large pools of foreclosed homes owned by mortgage giant Fannie Mae, with the intention they will become rental housing and help to stabilize housing markets. About 2500 homes owned by Fannie Mae were recently listed for sale in some of the hardest-hit markets in the U.S.

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