Renters welcome: But they won't cover your mortgage
By LINDA RAWLS

Turmoil in local housing markets could make a perfect storm anywhere else seem like a pleasant breeze on a soft spring day.

Just consider: Grossly inflated home prices. Chaos in the mortgage lending market. Tumbling home sales. Soaring inventory. Skyrocketing foreclosures.

Now add: Stalled apartment construction. A growing number of renters. And record-high rents.

"It's all happening at once," said mortgage broker James Sahnger of the Palm Beach Financial Network in Sewall's Point.

Indeed it is. Owners, including investors, have been trying to sell their houses and condos for months, maybe years. But even if they can find buyers, it's doubtful they will recover anywhere near what they paid if they bought when the market was at its peak, or with adjustable-rate mortgages and other creative loan products now resetting with payments as much as triple the original amount.

Even Palm Beach County and Treasure Coast homeowners with fixed-rate mortgages are finding themselves in trouble and headed for foreclosure.

Now that the roof has come crashing down on the housing boom, so to speak, sellers find they are unable to get the price they need, which is well beyond the pocketbook of most buyers. So they're putting the houses and condos up for rent.

"I've been doing rentals in Versailles - almost $1 million homes," says Realtor Randy Bianchi, broker-owner of Paradise Properties in West Palm Beach. Bianchi's own home in Ibis Country Club just went under contract after being on the market for more than a year. He even tried to rent it. In the end, it was "whichever came first," he said.

But even homes renting for $3,500 a month, as in ritzy developments like Wellington's Versailles or West Palm Beach's Terracina, might not pay enough to cover the owner's monthly costs.

"In many cases, owners are renting for half their monthly costs," said Jack McCabe, president of McCabe Research and Consulting in Deerfield Beach.

That's because the same issue that forced sellers to pull their properties off the for-sale market now dogs them in the rental market: inventory. There are nearly 35,000 residential properties for sale in Palm Beach County alone, according to Illustrated Properties Real Estate. That's a staggering four-year supply at the current pace of sales.

"We're seeing investors try to rent their properties out to generate income," said real estate analyst Mike Larson of Weiss Inc. in Jupiter. "But because there's so much competition, they're having trouble getting enough to cover their monthly mortgage, insurance and taxes."

Blame the investors

For the first time ever, at the end of 2005 - the peak of the boom - the vacancy rate for single-family homes was greater than the vacancy rate for rentals, according to the National Association of Home Builders. Single-family homes now account for 30 percent of all rentals nationwide, the association said, putting the blame squarely on investors.

"The current high vacancy rate for single-family rentals is most likely due to excess supply from individuals who originally purchased a house with hopes of quickly selling it for a profit and now find they must either sell at a loss or rent the property until the housing market rebounds," the association said.

In downtown West Palm Beach and up and down the coast, condo developments dot the landscape. Once those infill projects were built out, and with the boom still booming, the condo conversion began. Apartments were yanked out of the rental pool, refurbished and put up for sale in the condo market.

In 2005, Palm Beach County lost nearly 14,000 rentals to condo conversion - 10 percent of the apartment inventory at the time, according to a Florida International University study done for the Housing Leadership Council of Palm Beach County. West Palm Beach lost 4,514 units, Boca Raton 2,295 and Boynton Beach 2,201.

As the supply of apartments dwindled, rents rose. In 2000, a two-bedroom apartment rented for about $700, the FIU study shows. Five years later, a two-bedroom apartment rented for $1,122 - an increase of 52 percent. By the third quarter of this year, that apartment rented for $1,224, according to RealFacts, a California-based housing research company.

Rental to condo to rental

With condo sales down and rents rising, the newest trend became "condo reversion," a term analyst McCabe says he coined in April 2006. Condo units are going back to being rentals.

In Palm Beach County, more than 3,500 units have been pulled out of the for-sale condo market and put back into the rental pool, McCabe says, including Mizner Court at Broken Sound in Boca Raton (450 units), Aventine at Boynton Beach (216 units) and San Merano at Mirasol (476 units) in Palm Beach Gardens.

Of course, not all renters are frustrated wannabe homeowners priced out of the market.

Many can afford to buy a home - 20 percent have incomes above $60,000.

They choose to rent to avoid financial risk in an uncertain housing market, says the Joint Center for Housing Studies at Harvard University. Renting also gives them an urban lifestyle at a lower price - certainly lower than home prices in Palm Beach County.

The median price of an existing single-family home in Palm Beach County was $421,500 at the peak of the housing boom in November 2005, according to the Florida Association of Realtors. Treasure Coast single-family home prices peaked in September of that year at a median of $269,400.

But to be affordable to the people who live and work in Palm Beach County, homes need to cost less than $200,000, the FIU study says. Palm Beach County's housing problem, then, is really an affordability problem, some analysts say.

As rents escalate, teachers and other essential workers are paying more than 30 percent of their income for rent and utilities, which makes them "cost-burdened," according to the federal government. Florida leads the nation in such renters, according to the Census Bureau, which says 52 percent pay more than a third of their gross monthly household income for housing.

More renters on the way

Despite rising rental costs, the number of renters is growing. Between now and 2015, the number of renter households will increase by 1.8 million, according to the Harvard's Joint Center for Housing Studies. National Multi-Housing Council data shows minorities will be responsible for the entire gain and eventually will account for a majority of all renter households.

The number of Hispanic renters will nearly double by 2020, growing to 9.1 million households, the Joint Center for Housing says.

The National Multi-Housing Council, a division of the National Association of Home Builders, agrees, saying that "the future of rental housing is focused on Hispanics."

They want larger, more affordable apartments, the council says.

The other group driving apartment demand is that tidal wave of young people called Echo Boomers. They will accept smaller apartments as long as they come with high-tech amenities and are in urban neighborhoods, the council says.

Palm Beach County also can count on demand from Baby Boomers, as well as affluent Northeasterners looking for second homes in a resort area.

In the meantime, analyst McCabe says, "Renting may be the most cost-effective form of shelter until we see real appreciation from real demand from end users - not the artificial demand from the speculators during the boom years."

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