What a difference three quarters makes! When we first started collecting this data, shadow market rents significantly outpaced apartments. This wasn't a surprise because it made logical sense to most that a renter is willing to pay more for a 3 bedroom single-family home than a 3 bedroom apartment. However, that logic may no longer matter in this hot rental market! Consider this:

One Bedroom Units

In 2011 Q3, the median rent for a shadow market 1 bedroom was $91 higher than an apartment ($800 vs. $709).

In 2012 Q2,  the median rent for a shadow market 1 bedroom was $5 less than an apartment ($775 vs. $780).

Two Bedroom Units

In 2011 Q3, the median rent for a shadow market 2 bedroom was $204 higher than an apartment ($1,099 vs. $895).

In 2012 Q2, the median rent for a shadow market 2 bedroom was $100 higher than an apartment ($1075 vs. $975).

Three Bedroom Units

In 2011 Q3, the median rent for a shadow market 3 bedroom was $100 higher than an apartment ($1,300 vs. $1,200).

In 2012 Q2, the median rent for a shadow market 3 bedroom was $5 higher than an apartment ($1, 300 vs. $1,295).


Interesting Trends Worth Noting:

1. Shadow market rents have gone down or remained flat over the past three quarters.

2. Apartment rents continue to climb:

• 1 Bedrooms up 10%
• 2 Bedrooms up 9%
• 3 Bedrooms up 8%

Why are Shadow Market Rents Flat or Down?
The first place we looked for an answer within the data was in building type. Were there fewer single-family home rentals and more townhomes and duplexes that caused the rents to remain flat? No. Single family homes made up 28% of the rental market in 2011 Q3, and 27% in 2012 Q2.

The second place we looked was in total number of listings advertised. Two and three bedrooms had a similar number of listings in 2011 Q3 and 2012 Q2. One bedrooms had about 600 more in 2012 Q2. It is possible that increased competition has suppressed one bedroom rents in the shadow market. Something else is likely in play as well.

The motivations of many shadow market landlords are different. Their concerns are more about covering the mortgage than increasing profit. This particularly comes into play at lease renewal. A shadow market landlord may lack the capacity (and cash flow!) to raise the rent, find a new renter, cover turnover costs, etc. As a result, rents remain flat, while the professional operators of apartment communities have the capacity to raise rents, turnover units, and maximize cash flow in this hot rental market.

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