“For Sale” Becoming “For Rent”

With the national housing market in the tank, demand for rental property is increasing. But it looks like the supply of apartments also is rising quickly despite little new apartment construction.

According to a new report from Goldman Sachs’ U.S. Economic Research Group, about 1 million for-sale units were converted to rentals during the past two years (These are existing for-sale properties that are now being rented out, not new rental units). The new supply of rentals has so far kept rent inflation in check.

But the apartments could easily be put back on the for-sale market when home prices stabilize and that could slow the recovery, the report said.

“The shift of houses toward rental uses also points to another problem for the real estate market: a large amount of ’shadow’ housing supply that could come back into the market at signs of improvement. Just as housing converted to rental, it can be converted back if demand shifts. Signs of price stabilization, or improvement, would be greeted by owners as an opportunity to bring homes back onto the for-purchase market. In addition to rental conversions, over the past two years there have been sharp increases in the number of homes either ‘held off the market for other reasons’ or ’seasonally vacant’; the combined increases in the two compared to the start of 2006 is nearly a million homes. These sources of shadow supply make a robust ‘V’ shaped housing market recovery unlikely.”

[SOURCE: Business Week]

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