rental market report

The rental market data for the performance of investment grade rentals during the month of May is in and it offers some fascinating insight.

First let’s start with the biggest surprise: At the end of May, the available inventory of rental properties in the quality submarkets that we track jumped to 569 (+22%  over April) even as the units leased during the month of May increased 9% year over year (and 7% over last month). In my opinion this comes as a result of two factors. First, this is an indication of increased purchasing activity by real estate investors that are buying at a faster pace in an attempt to avoid interest rate increases in the horizon. Second, since we are getting into the hottest time of the year for rentals, many of the units leased last year with one year terms are coming up for renewal thus contributing to the higher inventory.

The current number of units available for lease and the average rate of properties leased over the last 12 months represent 33 days of inventory on the market. Given the feedback we are getting from the rental market on a first hand basis, I think the added inventory will lead to an even higher number of units leased during the month of June.

Finally, rents rose by 3% year over year (declined 0.8% over April’s figure) and days on market shrank to the second lowest level since 2007 (21 days). This is good news for investors who are looking for a counterbalance to rising asset prices as the housing market is in full recovery mode.

Every year since 2007, the number of properties leased during the month of April had been 8-10% lower than the corresponding March figure.

This year, the Houston rental market shattered this well-established trend. According to statistics obtained directly from the MLS for investment grade rental properties, a total of 507 single family homes were leased during the month of April. That figure represents a 24% increase year over year and an 8% jump over last month.

The solid jump in units leased was certainly welcome news. But was this increase as a result of higher demand or lower prices? The numbers answered that question emphatically in April. Average rents climbed to $1578 per month – a 6% increase year of year and a 3% jump over March 2013.  Not only that, but the April average rent is the highest rent on record. So clearly, organic tenant demand is the culprit not reduced rents.

Average days on market came in at a low 27 days  – on par with both April 2012 and last month.

Available inventory of investment grade properties for lease dropped to 465 homes (down from 507 on April 1) on the back of the increase in units leased. When we look at the average units leased over the last 12 months, that number comes in right at 500 properties/month so there’s less than 30 days inventory on the market. The current supply demand relationship points to further strength in the rental market for investment grade properties in the months to come.

To view our interactive Houston Investment Grade Rentals (HIGR) Chart click on the chart image above.