The State of the Seattle Area Residential Rental Market

Many of you may have seen the March article on MSN that ranked Seattle as the top declining rental market in the nation. The article stated a twelve month decline in Seattle rental rates of 13.7% which was quite alarming and a surprise to many of us in the industry.
While there have been some declines in rental rates over the past 18 months, we don’t believe that it approached the number stated on the MSN article. In fact, we are beginning to see the rental market firm up in many sectors including single family homes and individually owned condominiums.
The declines experienced in prior months were largely due to an over-supply of homes on the market from “would-be” sellers. Those that would have preferred to sell if there were enough buyers at the right price. As a next best alternative, many of these “would be” sellers became landlords by default. These newly minted landlords would sometimes needlessly drop their rental prices out of panic or just as a means of finding a quick Tenant. This phenomenon definitely added to the downward pressure on rents.
In recent months we have experienced a steady firming of the rental market and are again seeing some, albeit slight, year-over-year increases in rent renewals. We believe that this can be attributed to several factors:
• An increase in home sales has given potential home sellers more hope and incentive to keep their homes listed for sale instead of listing them for rent. This has worked to limit the over-supply of homes on the market and relieve some of the downward pressure.
• Since January of this year we have witnessed a significant increase in rental inquiries. We believe that as general economic conditions showed signs of improvement, many tenants that may have been “hunkering down” with family or roommates were now confident enough again to commit to their own home.
• As lay-off victims now begin to find new employment, there are simply many people on the move. Although we see many moving from the area to find new employment, we are also seeing many more moving into the area to take a new job. A significant number of these are seeking rental homes.
• Finally, it seems important to note that many potential home buyers of past years are questioning the conventional wisdom of homeownership as a wise financial decision. Even at today’s significantly decreased acquisition costs, a typical Seattle Metropolitan home will rent for around $1,000 per month less than the cost of owning it (interest, property taxes, insurance, maintenance, etc.). The increased demand for quality rentals from this sector is not to be ignored.
While we are, no doubt, still in a “renters market”, there is a stabilization force taking hold. Of course, all of the above factors will also create opportunities for some. For example, those tenants that have been renting for years and have escaped the hit on net worth that many home owners have experienced are now sensing the right time to finally buy a home for themselves. Also, rental home investors (especially those not needing financing) don’t have to look far to find bargains.
The trends will likely take many more twists and turns on the road to recovery but are once again beginning to show signs of predictability and stabilization.