Thursday, April 12, 2012

It is a Good Time to Be a Landlord - Market Updates - Four Different Worlds

ONEprop operates in eight different metropolitan areas.  These are in four different worlds as you review the current state of each market.

Market One - Ready to Break Out
Austin is the least elastic market (this is good if you own, bad if you are trying to buy).  In an area which was never overbuilt, our second year of 50,000+ population growth and the second year when less than 7,000 single family homes were built, we are seeing pressure in both the sales and the rental market.  The Days on Market (DOM) for sales is less than 4.5 months supply.  Traditionally a six months supply is considered balanced.  I have seen multiple offer situations for sales and rentals.  The market has responded by adding inventory, but new inventory is leaning towards multi-family rental properties.  The new construction of these apartments include a lot of urban infill with mid to high end apartments closer in to the city.  If we have a third year in a row of 50,000+ population growth there could be some explosive growth, either in prices or construction.  The Austin economy is growing, the primary reason for the influx of people is because of an increase in quality jobs.  Now, if the single family construction starts up again it will only increase the pressure on housing.  Each single family home is supposed to add one additional job which means more people moving into the area who will all need places to live.

Market Two - Still in the Doldrums
Phoenix is the most elastic of our markets.  The signs are good for a recovery - but it may not have real traction until 2015.  Until that time Phoenix will be living on the excess inventory from the aggressive building which took place from 2000 through 2008.  It may take until 2017 before things really start to look good here.  Even if you buy now and receive high rent as compared to value, the tenants in Arizona are the least sticky of all, which increases costs as a landlord.  This issue shows itself in higher turnover and when tenants leave our Phoenix tenants are the least likely to leave the property in good condition.

Market Three - Solid Quality, Ready for Growth
Houston, Dallas, Oklahoma City and Tulsa are all sitting in a good market, but also on the brink of a better market.  All these markets are seeing an increase in population and jobs.  The Dallas/Fort Worth Metroplex saw an increase of 160,000 people over the most recent 12 month period, but they are assimilated into the almost 7,000,000 people of the Metroplex without the stress which happens in Austin.  If the current trends continue there will upward pressures similar to Austin in another 12-18 months.  Houston added 155,000 people over the past year so it is mapping to Dallas in this regard.  Oklahoma City and Tulsa continue to be favorite locations for us.  They do not attract the same attention as Dallas and Houston, being significantly smaller, but this means there is less competition leading to higher rent/value ratios.  Add in that property tax rates are about 1/3 of what they are in Texas, the overall cost of ownership is much less.  All these markets are doing well and the trend over the next 2-5 years indicate they will outperform the rest of the country.

Market Four - Firm but Shaky
Baton Rouge is a story of good and bad.  It is a market with a diverse economy, including a strong presence of higher education, state government and oil and gas.  The bad for Baton Rouge is the re-emergence of New Orleans.  There is a tremendously high energy in New Orleans and the brightness of this star of the south draws some of the growth and energy away from Baton RougeBaton Rouge is stable, but it does not look like it will be a star in the near future.

This brings us to Charlotte, our newest and smallest office. Similar to Baton Rouge, Charlotte is stable, but not rockin'.  The two primary economic drivers in Charlotte are the banking industry and NASCAR, both of which are limping along.  The star of North Carolina is currently the Research Triangle area around Raleigh-Durham which benefits from the strong education and research driven economies.  Expect the Research Triangle to lead North Carolina with Charlotte to follow after.  The area where Charlotte may surprise is in manufacturing.  With a low cost of living, ample workforce and business friendly atmosphere, if there is a shift back to more US based manufacturing you will see Charlotte rising faster then you might otherwise expect.  Increasing oil prices will help our Houston clients as Houston is the center of the US energy (oil) industry, but increasing oil prices will also help Charlotte as it makes "Made in the USA" more cost effective.  Charlotte is the only market where ONEprop operates which has heavy manufacturing upside.

Summary
All our markets are doing well for our clients with extraordinary occupancy rates, better than we have experienced since 2002.  We continue to push up rents, doing everything we can to maximize revenues for our clients.  The only clients who are still suffering large pains are Arizona property owners who invested before 2008.  Please send me any questions about a specific market and I will be glad to provide more detail about the overall market and/or the micro market where your specific home is.

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