MOBILITY Magazine, April 2009
The challenging real estate market that is being felt all around the United States has made renting en vogue once again. Nunan explains how transferees and real estate companies are adapting to this challenge.
Relocation divisions across the country have seen notable increases in their rental business during the last 12 months, some reporting increases as high as 40 percent. And with rental inventories on the rise, the market has become quite appealing to many.
There are numerous factors behind this new trend but one that resonates the loudest is that many transferees are finding it difficult to sell their current homes, and without buy-out options, some may have no other choice but to rent in the destination market and ride out the slow real estate market of their former home.
Ryan Carrell, CRP, director of relocation and corporate services, Carpenter Realtors, Indianapolis, Indiana, said, “many times the client has a home to sell in the market they are relocating from that is not moving. In the past, where a transferee would have pursued temp housing for 30 to 60 days to simply bridge the timeframes, they are instead now choosing longer lease options such as six to 12 months.”
Further fueling the rental market is that these would-be sellers decide to rent their former home to help them cover all the costs of carrying that home and renting another in the new location. “We are certainly seeing an increase in sellers wanting to entertain leases or rent to own offers under the current market conditions,” said Carrell. “Though central Indiana did not experience the spike in prices and following devaluations as many markets have, inventory levels are still relatively high and many sellers who purchased with little or no money down are in negative equity positions.” It is this combination, said Carrell, that “is forcing many sellers to investigate lease options.”
Allison Harvey, CRP, director of relocation for Arizona Best Real Estate, Scottsdale, Arizona, agreed with Carrell. “Many of our seller transferees have decided to rent their home in lieu of a sale,” she said. “Most of them purchased in the last three to five years when prices were at their highest and would suffer a loss to sell in the current market.”
This is a loss that many would rather not incur. For those transferees coming into the Phoenix, Arizona-area, at least throughout 2008, Harvey said, “many were hesitant to purchase in the Phoenix market due to prices still declining. They were fearful that if they purchased they would find themselves upside down if they relocated and moved again within two to four years.”
Reluctance to Relocate
These very real fears often cause reluctance for employees to even accept a job transfer. According to The Worldwide ERC® 2008 Transfer Volume and Cost Survey, transfer activity is on the decline. The survey cites one of the reasons as reluctance to relocate. Overall, 70 percent of organizations report having problems with employee reluctance to relocate—up from 60 percent the prior year. The top reason given is the result of the weakened housing market. “The slowed real estate appreciation/depressed housing market at the old location” was cited as the number one reason their employees were unwilling to move.
Martha Turner Properties of Houston, Texas, saw a 40 percent increase in rental transactions in their relocation division. Anne Incorvia, director of relocation and corporate services said, “we’ve seen that there have been numerous factors forcing individuals to choose to rent before purchasing. First, relocation policy changes—the transferee’s term for their job was for a two-year term so they wanted to keep their current home in the market they were leaving and rent in the new area.”
Incorvia also said, “in some instances the transferees’ benefits for selling their home in the departure market were negligible and it was, therefore, better for them to rent out the home they were leaving and also lease their new home in Houston. Additionally, we found some transferees renting due to the poor economic climate in their departure city, thus they just could not sell their current home. And finally, due to credit being tightened they could not get a second mortgage or bridge loan while they waited for their home to sell in their departure city.”
In yet another part of the country, Tammy Carroll, CRP, GMS, vice president of corporate services for Bob Parks Realty, Nashville, Tennessee, saw an increase of 30 percent in their relocation rentals. She echoed what other relocation directors were reporting—that the number one reason transferees were choosing to rent initially was “due to the fact that their home has not sold in the departure city.”
Do you see a recurring theme here? With the real estate market still stalled in many parts of the country, rentals may continue to grow. Now may just be the time to re-evaluate and expand your rental services or start a rental division. It may well be a growing segment of our business for the next few years.
One real estate brokerage that sees this trend as an opportunity is Prudential Douglas Elliman of New York, New York. The company just recently announced they will be opening an office exclusively dedicated to rental properties for the first time in more than 10 years. According to Stephen Kotler, executive vice president and director of sales and rentals, “During the summer of 2008, the company noticed its rental activity was up 15 percent and decided to devote more resources to that market.” Kotler said that they have leased 15,000 square feet to house the rental operations and the company will be recruiting up to 75 agents to specialize in rentals. Kotler believes this is a growing segment of the real estate business now, as “based on market conditions, more would-be buyers are moving toward rentals as they contemplate the market long term.”
Additionally, it is no secret that today’s renter will be tomorrow’s buyer. Catering to this market now may prove fruitful to the real estate brokers in the future. In fact, Carroll noted that in her division, “we have systems in place to keep in touch with the transferees that are renting as part of our full-service to our clients. Educating transferees about the Nashville market is important and we hope to be there when they are ready to purchase after their lease is up. Our goal is to help them with making wise investments in the market.”
So with rentals on the rise for the time being, it is interesting to wonder whether this trend will continue. Will more employers expand their relocation benefits to be more “renter friendly?” Will more real estate companies see this growing market segment as an opportunity? These are all good questions to ponder as we see where this ever-changing market takes us next.
Elizabeth D. Nunan, CRP, GMS, is vice president, relocation, for Houlihan Lawrence Real Estate, Armonk, New York, and a member of the MOBILITY Editorial Advisory Committee. She can be reached at +1 914 273 2800 ext. 267 or firstname.lastname@example.org.