The Market for Condos and Apartments

There is some good news for renters and some not-so-good news for landlords in the current real estate market. There has been a slow growth in demand for rental units of late, which will prevent large rent increases in 2007, and perhaps beyond. In recent years, landlords have lost more renters due to home-buying than unusual. The national rental vacancy rate rose slightly to 5.5% at the close of 2006.

In addition, the condominium market has become weak and is not expected to rebound to boom levels. Housing experts admit that the condo market is past its peak, which probably came in late 2005 or early 2006. In fact, some condominium complexes that are currently in the pipeline are likely to become rental apartments instead. Remember when all those rental apartments were converted into condos? Well, this is the reverse process, what is currently being called "reverse conversion" or "re-partments."

The fact that many would-be condominiums are being turned into apartments could further hurt landlords by making the rental market more competitive. Especially in an atmosphere where there is not currently a huge demand for rental properties. Experts do not expect the trend to result in lowered rental rates, but the rental growth rate is expected to be cut in half from what it otherwise would have been.

The logic behind the rental market is fairly simple. It is a matter of supply and demand. The more vacancies in the rental market, the more competitive the market becomes. The more competitive the market becomes, the lower rental rates are set. The dwindling demand for apartments causes more vacancies, as does the building of more rental properties, and the conversion of would-be condos into apartment complexes. As demand increases and vacancy rates come down, rental rates gain momentum and rise.

Many housing experts are already looking ahead to five or ten years from now. Experts expect these statistics to be far different from what they are now. In fact, experts say that the rental apartment market and condo market will gain the advantage with the upcoming change in demographics. Experts suggest that the children of the baby boomers - what they call the "echo boomers" - will be in the market for multifamily dwellings, especially rental apartments. And that many baby boomers themselves are likely to want to downsize from a house to a condo.

But at least for the time being, renters should be safe from drastic increases in rental rates. And the increasing cost of condos should level off. This current trend could affect landlords who are considering whether to purchase additional rental properties, home-buyers who are deciding whether to purchase a house or condo, renters who are considering whether to purchase their first home or continue renting, and builders who now have to decide whether projects currently in the pipeline should be made into condos or rental apartments.

Of course, the condo and rental apartment markets also vary in different states and different parts of the country. And the economy always affects the housing market for better or worse.