Real Estate: Rental housing market reels from oversupply, low rates

GREELEY — Steve Reed isn’t diplomatic about the state of the rental housing market.

“It sucks — and you can quote me on that,´ said Reed, president of Property Technica, a Greeley property management firm.

According to Reed, 18 percent of the roughly 900 units he manages were sitting vacant as of the end of August.

The picture isn’t any better in Fort Collins, where veteran property manager Ed Stoner estimates vacancies at 15 percent. Other real estate insiders have estimated 20 percent.

In both college towns, where vacancies are typically paper thin at the start of the school year, property managers are grousing over two major factors in the soft market: an oversupply of new rentals and low interest rates.

Vacancies were so low in the early and mid-1990s across Northern Colorado, stories of students living out of their cars became regular features in the local media.

Developers responded with a surge of apartment construction in the late 1990s.

Unfortunately for established investors in multi-family properties, the developers have kept responding well past the point of need.

“There’s no question we’re overbuilt, and what amazes me is they are still building,” Reed said.

The lengthy period of low mortgage rates has also taken a bite out of the rental market. People who were typically in the market for rentals have instead turned into buyers, simply because loan payments were as cheap or less expensive than rent.

“I know we lost a few tenants this way,´ said Stoner, who oversees about 200 rental units.

In Greeley, Reed said the slowest segment of the rental market is two-bedroom units, which he estimates at a 30 percent vacancy.

The result of the softening market is bad news for investors, who are seeing prices drop — dramatically in some cases.

“We’ve lowered rent consistently,” Stoner said. “We’re back at 1997 levels.”

For example, Stoner’s marketing a “real nice” two-bedroom apartment in south Fort Collins at $557 per month, 20 percent below the price asked two years ago.

Reed tells of one two-bedroom unit that went for $290 a month in 1988, then soared to $610 per month by 2000. He’s asking $495 this year.

“If you compare it with 15 years ago, it looks good,” he said. “If you compare it with three years ago, it looks bad.”

It will be interesting to see the results of the next Colorado Division of Housing rental vacancy survey, which will be released in November. That report will reflect September vacancy figures.

The most recent survey, which reflected February vacancies, showed Fort Collins with a 13.7 percent vacancy, Greeley at 10.7 percent and Loveland at 19.6 percent.

Reed expects the market to stay soft in Greeley for “two or three years. But that depends on how many more idiots build places.”

ReMax First sizes up Loveland

LOVELAND — ReMax First Associates is real serious about the Loveland real estate market.

The Fort Collins-based brokerage has acquired a three-quarter-acre development lot on the south side of Lake Loveland to build a 13,000-square-foot office, probably by next summer.

ReMax currently has 32 agents at its 3850 N. Grant Ave. office in north Loveland in about 5,000 square feet, said managing broker Gene Vaughan.

“We’re very happy there — it’s a great building,” Vaughan said. “It’s just that we want to have our own facility designed specifically to our needs.”

And more space.

Vaughan hopes to grow the Loveland office to about 50 agents “within six months after occupancy.”

ReMax paid $330,000 for the lot, located in the 700 block of West Eisenhower Boulevard. The entire project will cost about $2.4 million, Vaughan said.

Sales activity hottest in Greeley

GREELEY — The most active zip code in Northern Colorado for housing resales during the second quarter was 80634, which covers the southwest Greeley area.

Real estate agents sold 346 existing homes within the 80634 boundaries, an increase of 39 percent from the second quarter of 2002. However, average sales prices in the zip code dropped 3.1 percent to $188,639 per transaction.

Denver-based the zip code analysis is conducted quarterly by ReMax International each quarter.

The next most active zip codes in the region were 80525 and 80526, which cover most of south Fort Collins. Sales totals were almost identical — 325 homes in 80525 and 324 in 80526. But like Greeley, these zip codes experienced declines in average sale price.

The most expensive zip code in the region was 80302 in Boulder, where resales fetched an average of $489,601.

Regionwide, home sales were up to 4,900 in the second quarter, compared to 4,202 the year before. Average prices fell to $248,463, down 3.5 percent from $257,668 last year.

Robert Baun can be reached at (970) 221-5400, (970) 356-1683 or via e-mail at bbaun@ncbr.com. His fax number is (970) 221-5432.

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