Further analysis of the downtown condominium market shows that there has been a rapid increase in rentals from 27 in 2005 to 328 in 2010. Couple this rental activity with sales activity and this year, 2011, projects to deliver 618 units in the downtown market, exceeding even 2007 the previous peak year.
The ratio of rentals vs sales changed in 2009 to be over 60% rentals. There are several reasons for this. The first reason was mentioned in the previous article, owners cannot sell their property for the value they perceive it to be, and renting is a way of pushing an eventual sale into what many believe will be a stronger sale market. Secondly, many of the units in buildings that entered the market at its peak, Courtside, Court 6, Fifth & Poplar, The Avenue, TradeMark and 230 South Tryon, were purchased by investors with the intent to use the property for rental.
This dynamic has cause concern among most of the Homeowners Associations downtown. Renters generally do not share the same concerns that owners have for the general upkeep of the common areas. A further issue is that many lenders view the percentage of renters in a building as a potential red flag once a mortgage application gets to underwriting. In today’s credit market, lending has become much more restrictive than it was 5 years ago. It is not uncommon to see a MLS listing from Fifth & Poplar with the caveat that indicates that only cash deals will be considered.
If you are wondering why an optimistic person like me is bringing some of this seemingly scary information forward, the reason is simple. The demand to live downtown has never been higher. Gas is taking an increasing amount of disposable income from people. The auto industry is building its rebirth around smaller, more fuel efficient cars. An urban life style of walking to work, entertainment, dining, and shopping, remains attractive.
The trend is clear. I expect that rentals will cool off somewhat and sales will once again become the predominant path to living downtown, and a return of property values.