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Friday, October 05, 2012
N. Texas Apartment Rents Up 15% Last Five Years
Oct. 05--Over the last five years, North Texas apartment rents have gone up by 15 percent.
At the same time, incomes have been basically flat.
Do the math, and the latest apartment market reports that show a sudden freeze in net rentals shouldn't come as a surprise.
During the third quarter, net apartment leasing in the Dallas-Fort Worth area was basically flat -- a surprise after a huge increase in demand this summer.
Of course, it could be that the surge in second quarter apartment activity already took more than 8,000 renters out of the market for places to live.
But apartment analysts at MPF Research say it's more likely that renters in some neighborhoods are just having a hard time keeping up with rising apartment costs.
Average apartment rents in the D-FW area were at an all-time high of $827 a month at the end of September, MPF Research reports. In popular central Dallas neighborhoods, rents are over $1,500.
Temptation to buy
While apartment owners have been pushing rents, the cost of buying a house has been falling.
Home mortgage rates are at record low levels.
And home prices in the D-FW area are still slightly below where they were before the recession hit.
The mortgage payment on a midpriced pre-owned home in North Texas runs about $630 a month at present interest rates.
The D-FW areas that saw net leasing of apartments decline in the third quarter all have affordable homes to purchase -- Irving, Garland, Mesquite, Grand Prairie, Hurst-Euless-Bedford, Oak Cliff and East Fort Worth.
Plus, there are large numbers of single-family homes for rent in these areas that were acquired out of foreclosure by investors.
Renters push back
The slowdown in net apartment rentals comes at a bad time for developers.
Almost 18,000 apartments -- mostly higher-priced units -- are under construction in the D-FW area. And builders are still scrambling to start new deals.
Much of the building is in urban areas including Dallas' Uptown district and Irving's Las Colinas development where new jobs are being added and incomes are rising.
But even in the high-end markets, landlords are starting to get some pushback against continual rent increases, said Dallas apartment analyst Mike Puls.
"Land costs and construction costs have gone up, and that's what is driving rents," Puls said. "But consumer confidence is not strong enough for many people to be willing to commit higher percentages of their income to rent."
Puls said average rental rates on some of the new buildings have reached the point that landlords require tenants with much higher incomes than in previous cycles.
"There are a lot less people at that level," he said. "And almost everybody is building the exact same mix of new units."
More units on the way
So far in 2012, net apartment leasing in the D-FW area has been strong enough to fill up all the new rental units that are opening up.
And demand in popular markets like Uptown is still outpacing supply.
Traditionally, the fourth quarter is one of the weakest periods for apartment demand because of the holidays.
"A slight negative in the fourth quarter would be the same old normal seasonality," MPF Research vice president Greg Willett said. "But it wouldn't be surprising for demand to be a little positive this time because of new supply coming on stream."
Developers better hope that's the case. Because another quarter of weak net apartment leasing would end the year on a negative note.