The Grand Valley has experienced some good and bad times over the years that have affected both home sales and residential rental markets. I’ve found it interesting that this current cycle has had some decidedly different results than previous downturns.
In the late 1970s and early 1980s, our valley experienced a roller coaster ride due to the promise of commercial oil shale production in the Parachute and Battlement Mesa area. Energy development brought a lot of people to our area, and construction of single and multi-family housing couldn’t keep pace with demand. Home prices and rents steadily increased until 1982, when Exxon announced it was closing down its Colony oil shale project. Then we experienced plummeting home prices and a skyrocketing rental vacancy rate. Many homeowners and tenants simply left our valley in droves to find work in other locations.
Since tenants were hard to find, the tenants that stuck it out were in control and had increased bargaining power with their landlords. Rental rates dropped, vacancies rose, month-to-month rents became common and longer-term tenants were offered the benefit of a free month’s rent for lease renewals of a year of more. It was a painful and costly time to be a landlord as tenants were known to vacate overnight and move down the street to save only $10 or $20 a month in rent.
With the most recent economic downturn since 2009, though, the rental market hasn’t been as volatile. Mesa County fell into the recession later than other areas, but we’ve experienced recovery later as well. This time, when Grand Valley residents became unemployed and lost their homes to foreclosure, they ended up moving into available rental homes in our area. Most had nowhere else to go for employment opportunities.
Here are the vacancy rates over the past seven years, which show an interesting trend:
2006 — 2.7 percent.
2007 — 1.7 percent.
2008 — 2.4 percent.
2009 — 7.5 percent.
2010 — 7.9 percent.
2011 — 7.7 percent.
2012 — 3.8 percent.
Before the downturn, the vacancy rate was in the 2 percent range. Then it moved up to the 8 percent range and is now a little less than 4 percent. In the mid 1980s, we saw overall vacancies approaching 15 percent to 20 percent, a much more dramatic shift. It’s interesting to note that in the last year there’s been such a significant decrease in the vacancy rate — a sign our rental market is stabilizing.
It’s also interesting to look at the average monthly rental rates over the same time period:
2006 — $566.
2007 — $610.
2008 — $670.
2009 — $674.
2010 — $656.
2011 — $656.
2012 — $630.
In the mid 1980s, rental rates dropped by 30 percent to 50 percent even as many landlords were held to mortgage interest rates of 13 percent 15 percent. Presently, our monthly unemployment is still above 8 percent, and some residents still need to add a roommate or find other creative ways to pay rent. I would say our current Grand Junction rental market doesn’t support rent increases even though the vacancy rates are low.
So while the rental market has felt the effects of our most recent recession, it has fared better this cycle than in the previous downturn.
It will be interesting to see what happens with rental rates and vacancies over the next 12 to 18 months.
On the one hand, vacancies could rise and rates decrease as people purchase homes to take advantage of lower prices and interest rates. Some of these buyers who were forced into rental housing because they lost their homes two to three years ago now have improved credit and will buy other homes. Others will be first-time homebuyers who started as renters and are now making their first purchases. Both of these actions could hurt the rental market.
On the other hand, we still have a growing population. People will enter the rental market by choice as their first address “away from home,” which means they’ll occupy many of those units recently vacated by new homebuyers. This, combined with the fact very little new rental housing has been built in the last several years, should promote stability in this area of the market.
In looking to what the future holds, I expect rents and vacancy rates to remain somewhat stable for the next 12 to 18 months.
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