THE FORECLOSURE EFFECT Following the foreclosure crisis, the median price of a single-family home in the metro area fell 11 percent last year to approximately $243,000 and was on course to decline to about $228,000 in the first quarter of 2008. The drop in the median price has improved affordability, however. The current annual median household income covers 97 percent of the purchase price of a median-priced home, up from 74 percent one year ago. In addition, the average monthly Class B or C rent in the market is $352 less than the monthly mortgage payment on a median-priced home, compared with a $116 deficit for Class A apartments. Single-family housing affordability has improved, but stricter mortgage underwriting will prevent the migration of many renters into for-sale housing.
The Northwest submarket is reported to have one of the highest numbers of foreclosures and renter-occupied single-family homes in the metro area. As a result, apartment vacancy in the submarket has surged 340 basis points in the past 12 months, and concessions have risen from 6.6 percent of asking rents to 7.7 percent during that time.
What’s more, projected reductions in state budgets due to the passage of the Amendment 1 tax relief measure are expected to adversely affect public college enrollments, including at the University of Central Florida (UCF). The potential loss of tenants in the Northeast submarket, where UCF is located, could be offset by new jobs at high-tech businesses that are moving into the area. Although a groundbreaking date has not been scheduled, a planned commuter rail project that will run through communities on the east side of Interstate 4 could enhance the attractiveness of rentals in areas such as Altamonte Springs, Maitland, Winter Park, and Casselberry.
Despite some short-term setbacks anticipated this year in Orlando, apartment market conditions in the next three to five years are expected to improve. Opportunistic investors in search of discounted pricing and higher-than-average cap rates would be well advised to consider multifamily investment options in Central Florida. Even in the near term, the region will continue to draw tourists from all over the world due to its proximity to major international attractions and the devalued U.S. dollar.
Stephen St. Clair is vice president of investments in the Orlando office of Marcus & Millichap Real Estate Investment Services, and is a senior director of the firm’s National Multi-Housing Group.