The big deal about rising rents in real estate

Values have been rising and so have rents. Across the country we’ve been hearing of rent increases in many cities (including Sacramento). Why does this matter? If you work in real estate, how do you plan to communicate this trend to clients? Let’s talk through some key points. I’d love to hear your take in the comments.

rising rents in sacramento - by greater sacramento area appraisal blog

Things to keep in mind about rising rents:

  1. Low Inventory: Rents are rising in large part due to low inventory. There has been population growth over the past decade, but very few new housing units have been built since the housing “bubble” burst. This essentially means we have a shortage of housing units. Keep in mind this isn’t an easy issue to solve since building a large number of units won’t happen overnight.
  2. Squeezed Savings for Tenants: Wage growth has been more or less stagnant in the Sacramento area at least, which means rent increases are coming directly out of a tenant’s savings account. Remember, if a tenant is saving up to buy a house, it’s going to now take longer to make that happen.
  3. Investors Holding: There are investors enjoying higher rents, and many will hold on to their properties for now instead of selling. Unless an investor is looking to diversify outside of real estate, an investor’s money is probably parked well right where it is. After all, why would an investor trade in great rentals only to buy something else at a much higher price today (and get the same rent)?
  4. Investors Selling: Not everyone is going to hold on to their properties though. There are many investors who purchased at lower prices from 2009 to 2012 especially, and it’s now time for them to cash out. Quite a few investors are actually selling directly to their tenants off MLS (agents, be there to write up the contract and help guide the process).
  5. Old Numbers: When rents rise quickly, sometimes the rents we see published online from a few quarters ago are simply old. Just like with rising values in the resale market, we have to ask whether the rental market has changed since the most recent data was published. Ultimately it’s important to look to a number of sources to get fresh numbers. Here are some suggestions: Craigslist, Hot Pads, Zilpy, Rent-O-Meter, & Zillow.
  6. Not Every Neighborhood: Like any trend, it’s easy to hear “rents are rising” and think that applies everywhere. Let’s remember some rental markets are hotter than others though. Apartment rents are said to have increased 10% last year in Sacramento and are projected to increase by another 10% this year. A similar dynamic is happening with single family units too, though NOT in every neighborhood.

I hope that was helpful.

Rental Event: By the way, I am helping put together a “Show Me The Money” event at SAR about the rental market. On May 18th from 12-1:30pm a property manager will talk through rental trends and give tips to agents for turning tenants into buyers. This is hosted by the Housing Opportunity Committee (which I chair this year).

Questions: What is point #7? Did I miss anything? What source do you use for rental data?

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10 sentences to describe Sacramento’s regional housing market

Have you ever attended a presentation and thought, “Wow, there wasn’t any reason why that needed to be an hour. The speaker could have said everything in 15 minutes.” This is why speaking is an art form. It takes real skill and time to hone a presentation, yet still pack the same punch in a shorter amount of time. The same holds true for writing. Twice a month I have two big market posts, but today instead of writing paragraphs below each graph, I’m simply sharing an image and then one sentence. Here are 10 sentences to describe Sacramento’s regional housing market (and Placer County). Any thoughts? Enjoy.

GRAPHS

SACRAMENTO’S REGIONAL MARKET

1) The median price has been the same for 5 months in a row ($310,000).

median price and inventory in sacramento placer yolo el dorado county

2) Housing inventory increased last month to 2.72 months (inventory isn’t the same at every price level).

months of housing inventory in region by sacramento appraisal blog

3) It took an average of 45 days to sell a house last month.

days on market in placer sac el dorado yolo county by sacramento appraisal blog

4) Sales volume is down about 9% this year compared to last year.

SALES volume in sacramento region - by home appraiser blog

5) There have been 36% less cash sales in 2014 compared to last year.

cash sales and volume in sacramento region - by home appraiser blog

6) The number of listings increased again last month.

number of listings in Placer Sacramento Yolo El Dorado county - July 2014 - by home appraiser blog

PLACER COUNTY

7) The median price has been fairly flat in Placer County ($386K).

Placer County median price and inventory - by home appraiser blog

8) Inventory is hovering just below 3 months in Placer County.

Placer County housing inventory - by home appraiser blog

months of housing inventory in placer county by sacramento appraisal blog

9) It took an average of 47 days to sell a home last month in Placer County.

days on market in placer county by sacramento appraisal blog

10) Sales volume is at fairly normal levels in Placer County.

Placer County sales volume - by sacramento appraisal blog

wright-reportThe Wright Report: By the way, I contributed a few thoughts to The Wright Report, which is the most exhaustive local real estate report I know of. If you need some resourceful bathroom reading, I suggest downloading it. You can read it carefully or maybe take a quick stroll through the graphs. I’m honored to pitch in a few thoughts, but that’s not why I’m sharing it. I really like what Joel Wright puts together, and it’s a great service to the real estate community. When we understand the market and how it’s moving, it’s good for business and for our clients. Download and enjoy.

Sharing Trends with your Clients? If you want to share graphs online or in your newsletter, please see my sharing policy. Thank you for sharing.

Questions: Do you like the format for this post? I’d love to hear your feedback. How else would you describe the market?

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