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The New Normal?

 Why You Should Consider Leases

Everyone has to live somewhere.  That means people must either own their home or rent—or live with their parents, but that would be another article topic.

Do you know what segment of the Houston real estate market had the greatest increase last year? Single-family leases. They were up more than 16 percent compared to 2010. (Okay, country home sales were up 18 percent so leases technically had the second largest increase, but that wouldn’t serve the purpose of this story.) According to our January 2012 figures, single-family leases were up another 15 percent compared to January 2011.

The Houston Chronicle has also written about the number of new apartment units being built in the greater Houston area. There is no doubt that the lease market is hot right now.

There were about 34,000 leases completed through the HAR MLS in 2011, which made up 35 percent of the total number of transactions going through the MLS. That is a segment that cannot be ignored.

With reports—both anecdotal and empirical—that mortgage lenders continue to have fairly stringent standards, it makes sense that many people who might not qualify for a mortgage right now are choosing to lease a home instead.  There are currently more than 5,000 properties available for lease on HAR.com. The average lease listing was only on the market for about 53 days in 2011, while the average single-family home for sale was listed for about 89 days.

There is also more turnover in leases, as most research shows people usually stay in a home they purchased for five to seven years, although I am sure that length of time is likely rising with the less stable economy of the last few years. Will you make as much of a commission on a lease as you would on a home sale? In most cases, no. But there are currently properties for lease in the MLS from $350 per month to $25,000 per month. That is a wide range of options for your potential client looking to lease.

Also, think about the above Days on Market stat for leases. It generally takes less time to find a home for lease. If you are working with the property owner, then they will likely need to lease it again in a year or two. If you are working with the lessee, then the same timeframe applies. When you total the amount of commission you might make during the course of time that someone else might own a home, it still adds up to a nice chunk of change.

Also, as REALTOR® Magazine pointed out in “The Year Ahead: Real Estate’s Best Bets in 2012” in the January 2012 issue, 63 percent of renters say they are at least somewhat likely to purchase a home in the future, according to a Harris Interactive survey. The renter you help today could be your buying client next year.

Newsweek and other publications have written about research that shows that the Millennial generation will be the first to be worse off than its parents’ generation. There are also predictions that home ownership rates will decline over time. In Houston, the percentage of people who own their home is 39.8 percent (47.9 percent of properties are renter-occupied and the balance of properties is vacant), according to the U.S. Census Bureau. If you broaden the search to Harris County, there is a 51 percent home ownership rate. That is obviously better than just the City of Houston figures, but is still well behind the national average of roughly 65 percent of properties that are owner-occupied.

We have been very fortunate in Houston to have not had a housing bubble and to still have support from $100-ish per barrel oil prices. Even as we try to say we have diversified our economy since the oil bust of the 1980s, Houston is still very reliant upon oil and natural gas. At least knowing that it is contributing back to our local economy makes it slightly easier when you are filling up your gas tank with gasoline that is nearing $4 per gallon.

If you’ve never completed a lease transaction before or are a little rusty on all the ins and outs of a lease from real estate school, HAR has a great course called “Leasing 101 – Understanding the Basics of Leasing” that will bring you up to speed on everything you’ll need to know. There are courses already on the calendar for March 13 and 14, as well as in April and June. And you’ll earn 6 hours of MCE at the same time. For more information and to register, see HAR’s online Real Estate Course Finder at www.har.com/edu.

All of this is to say that the lease side of the business isn’t going away and shouldn’t be shunned by our members. Do we still believe in the value of home ownership and will we continue to promote it to the best of our ability? Absolutely. But if someone is not yet in a position to afford a home or if they prefer to move often, then we have thousands of members who are available to help them find the home (to lease) of their dreams as well.

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