Apartment Hunting? Know This!

Apartment Hunting? Know this!

For the newly-graduated demographic, apartment hunting and leaving the nest could just be your next step in life. Say you secured a job and need to shorten the commute. Say you can’t stand to live with your parents anymore. Whatever the case may be, you’re in the market for a new apartment and on your way to new (and expensive) freedom!

According to an article in last week’s Bloomberg Businessweek, demand for apartments, and apartment rents, are both set to rise over the next three years. Read below to find out why, and how this change can affect you.

The national foreclosure rate for the fourth quarter of 2010 (October – December) was 4.63%. That means that thousands of people in our nation were kicked out of their homes as they defaulted (couldn’t pay) on their mortgages for several consecutive months. These foreclosures helped drive people out of the homeowner/ homebuyer market and into rentals. As you may recall from any economics course, when demand skyrockets, so do prices.

Some apartment prices could also be higher as apartment owners hike up the price to make up for losses they’re experiencing on some of their vacant apartments and properties. In effect, you might be charged more for rent simply because you’re helping owners keep their rental incomes steady if some of their properties are not currently rented or leased. It’s a business, after all.

In the early 1930’s, the Rothchild Family convinced the American people through highly effective campaigns that the “American Dream” is to be a homeowner. Thus, citizens could own their own piece of America and exercise full autonomy on their plot(s) of land. This occurred much in the same way that Debeers (the world’s largest diamond company) convinced the American people in the early twentieth century through again, highly-effective campaigns, that a diamond engagement ring (…and a BIG one) was the only way to express a man’s intention to make a woman his bride. Needless to say, in America currently, you’re considered socially-accepted and successful if you’re wearing a big rock and you own a home. No wonder.

Why do I mention this? After the median (middle) home price plummeted 27 percent in the last 5 years, some Americans no longer consider homeownership “the American dream”. Your investment would be solid, because home prices can only rise! If you’ve read Robert Kiyosaki’s Rich Dad, Poor Dad, however, homeowners might consider themselves the American suckers, rather than those who realized their own dreams. I don’t mean to be disparaging, but if you paid $1.4 million for your house, which is now worth $900K, and you want to sell your home, you’ll be taking a huge loss. Thus, the sucker punch. The drop in the prices (or values) of homes are driving people to rent, according to the article entitled, “Apartments Are on the Rise Again.” They’ve lost money on their investment (their homes), and who knows if the prices will ever rise again to the amount they paid. This will contribute to the upswing in demand for apartments.

So we understand that demand is climbing. Please understand also that supply is not climbing quickly enough to meet the 1 million additional renters per year. “New rental apartment construction plummeted to a 50-year low”, according to the Census Bureau Report, and current apartment construction is the slowest since 1959.

AvalonBay Communities, one of the largest public U.S. apartment homeowners, stepped up its new apartment building efforts, as they reasoned that since rents will increase, their costs will stay unchanged. Since materials costs are rising and rental rates are increasing (remember demand…!), the overall effect on net profit is steady. The Company started 11 new developments in 2011, which will undoubtedly help with the supply shortage.