Phoenix-area rental homes a red-hot commodity
Here’s an article from the Arizona Republic that highlights the competitive state of today’s Phoenix rental market.
Crowds of people swarming open houses. Multiple bids on properties from desperate home seekers. Palpable fear over losing the “right” place to a ravenous market.
Sounds like a typical day in metro Phoenix’s housing market, where buyer demand exceeds the supply of homes for sale.
But this frenzy is focused on houses for rent.
In the Valley’s most popular communities, desperate renters are submitting applications for multiple single-family homes to secure a place to live. Some would-be renters are dedicating as much as 20 hours a week to finding a new home. And when they find the right place, some feel pressure to offer much higher than the listed rent.
Greg Gale, a senior loan officer for Nova Home Loans, had only three weeks in August to find a new home. He launched a full-court press.
Gale applied to rent four properties, losing one after being a day late. He later found the property he wanted — a 4,600-square-foot home in north Scottsdale — and drafted a cover letter for his application, including his personal story and a promise to treat the house like his own. He included pictures of his children.
Gale admits he “pulled all the heartstrings” and believes it helped him get the house.
The unprecedented demand for rentals is fueled by former homeowners whose houses were foreclosed on or sold in short sales and now need a place to live. Some of them can no longer qualify to buy a home. For others, the housing bubble sullied the aura of owning a home.
In addition, new residents are migrating to the area for work. And members of households who had lived together out of financial necessity during the downturn are striking out on their own as the economy improves.
With the trend showing no sign of slowing, more investors than ever are buying homes to rent. Popular areas such as central and north Phoenix, south Scottsdale, Glendale, central Tempe, Chandler and Gilbert are hot spots for rentals.
Multiple indicators show demand for rentals has never been higher:
More rental contracts were signed in June and July than in any other months in the past decade, according to the Arizona Regional Multiple Listing Service.
The percentage of single-family homes purchased to be rented out hit a record 32 percent in July, more than triple the typical rate, said Mike Orr, a real-estate analyst at Arizona State University.
In July, the average rental home was empty for only 38 days, tied for the shortest period in 12 years, Orr said.
The vacancy rate for big apartment complexes recently hit an almost six-year low as of June 30, according to commercial broker Marcus & Millichap.
“It’s a crazy rental market right now,” said Liza Asbury of Realty One Group. “There are multiple offers for properties. If it (the home) is nice, it is definitely going fast.”
One renter Asbury represented lost out on a high-end home in Paradise Valley because a competitor bid $400 more a month than the listed rent.
Number of renters growing
The biggest factor in the hot rental market is the number of people who have experienced a foreclosure or short sale and can’t qualify to purchase a home.
Brett Nadler and Shelly Johnson are new to the rental-home market. Johnson was living in an apartment after a recent foreclosure.
A new couple, they have been searching for a four- or five-bedroom house since the end of May, hoping they could find a home to accommodate them, Johnson’s two sons and Nadler’s son and daughter. But it has been challenging.
In late August, they attended an open house at Power Ranch in Gilbert, hoping to get into a neighborhood where Johnson’s kids could continue attending the same elementary school.
“Everything rents really quickly,” Nadler said.
“You find a house on Craigslist, and the next day, the posting is gone,” Johnson said.
Ana Garcia is looking to rent for the first time. In fact, she was a landlord herself, owning 16 low-income properties in Mesa. But she lost the houses to the bank last year, and her own home in east Mesa was foreclosed on this year.
She’s living in her foreclosure home but needs to find a new place quickly. She said it’s hard work to find a nice place. “By the time you realize it, they are gone,” she said.
The properties that stay on the market are often dirty or have other issues. She recently saw a property that had termites, but the owners refused to get it treated because they didn’t feel they had to in order to rent it out.
A diabetic, Garcia said the situation has created a sense of panic that has aggravated her health problems.
“It’s there 24/7,” Garcia said of the anxiety. “Your health suffers.”
Both homebuyers and renters are flocking to the same parts of metro Phoenix. Areas near freeways, shopping centers and jobs are drawing the most new residents.
In the central Tempe ZIP code 85282, an area south of ASU and flanked by freeways, the typical rental home stays vacant for less than 22 days.
Rentals are also scarce in several central Phoenix and south Scottsdale ZIP codes. In 85012, a north-central Phoenix neighborhood, there are only 13 homes for rent and 37 for sale. A year ago, double that many homes were on the market in the neighborhood, stretching up Central Avenue to Glendale Avenue.
In ZIP code 85031, an affordable west Phoenix Maryvale neighborhood, there are only 12 homes for rent and 18 for sale.
In Gilbert’s 85298 ZIP code, where many of the area’s new homes are selling, there are only 28 homes for rent, and the average rental house leases in 34 days. The typical house rents for less than $850.
Many of the communities with the highest rents are taking the longest to rent.
In Paradise Valley, ZIP code 85253, it’s taking a landlord more than 100 days to find a tenant. There are more than 250 homes for sale in the upscale enclave and 62 for rent. Paradise Valley has metro Phoenix’s priciest homes and rentals. The average rent for one the area’s mansions is almost $4,000 a month.
Renting is the new buying
The demand for rentals has spawned a new phenomenon: Some landlords are holding weekend open houses to show off properties to several prospective tenants at once.
The events are often crowded with desperate home seekers.
Sean Badding, who owns five rental properties in the Valley, had more than 30 people attend his open house in July for a two-bedroom, one-bath home at the edge of the Encanto-Palmcroft Historic District that he offered for rent at $1,050 a month.
Twelve people submitted rental applications, Badding said, and he rented the property immediately.
“The location makes the biggest difference. A prime location, whether it is rent or sale, allows you to get it off the market as soon as possible,” he said.
Chris Doyle began advertising his 2,000-square-foot, four-bedroom, 21/2-bathroom house at Power Ranch in Gilbert for $1,195 a month on Aug. 22. He had eight calls in the next few days, and four families showed up at an open house on Aug. 26.
He got that traffic despite not including the address in his advertisement or erecting a “for rent” sign in front of the home until minutes before the open house. Doyle said a yard sign will usually bring as much traffic as ads on Craigslist or elsewhere, and many landlords advertise with yard signs only because demand is so high.
Doyle raised the monthly rent on the home by $100 a month, but it didn’t dampen interest.
“I saw the demand was there,” Doyle said.
Renters are dedicating as many as 20 hours a week to looking for the right home, and their searches can still take months, numerous renters and real-estate agents said.
Gale, who rented the house in north Scottsdale, said his wife, a stay-at-home mom, would gather listings from Internet searches or their real-estate agent and start driving to as many properties as she could get to in a day.
“There was a week where she went out every day or twice a day,” Gale said. “It’s literally a frenzy. You pull up to a house, and there are two other people there.”
Carmen Mioni searched for nearly four months for just the right townhouse in north-central Phoenix with a patio for her large dog. She looked at more than 75 properties on the Internet and visited 10 in person. Still, she couldn’t find exactly what she wanted and signed a lease on a less-than-ideal townhouse — the patio was too small for the dog.
“It was the best option I had because I was running out of time,” Mioni said. “I just went with it because there wasn’t going to be another place.”
Mioni said she also had to sign a longer lease than she wanted — 18 months instead of 12 — to get her rent down to $1,000 a month, where she needed it.
“It’s totally frustrating because your options are limited,” Mioni said.
Investors are responding to the demand and to home prices that are still well below boom levels.
In July, nearly one in three homes purchased was bought to be used as a rental, the highest percentage ever, ASU’s Orr said.
Typically, the percentage of homes bought to rent is 8 percent to 10 percent, Orr said. During the past two years, it ranged from 20 percent to 25 percent before hitting 32 percent in July.
For those who have the cash to buy, there is a historic spread between how much it costs to finance a home and monthly rents, so investors who buy at the right price can rent the house right away for more than the cost of a mortgage, taxes and insurance, while at the same time getting generous tax breaks.
The rental rates haven’t risen much despite the high demand — data show rents flat or rising slightly — but the price of housing has dropped 60 percent from the peak and only now is beginning to recover, Orr said. As a result, the “ratio has changed in favor of the landlord,” he said.
Kathy Karneth, who owns an investment property in Tempe and has recently flipped several houses, said her biggest problem is finding good deals on houses with the inventory so low. She will soon begin direct-mailing residents in certain Tempe neighborhoods — she buys only in Tempe — hoping to find a struggling homeowner willing to strike a deal before the property is formally listed on the market.
“It’s a very strong market,” said Alan Langston, executive director of the Arizona Real Estate Investors Association. “Something else is wrong with the property if it’s not rented immediately.”