Apartment Vacancies at 11 Year Low

Econintersect:  Demand for residential rentals is high and the number of apartment vacancies are shrinking as a result.  According to Bloomberg, national real estate market data specialist Reis Inc has reported the lowest apartment vacancy rate across the U.S. since 2001 and the third lowest value in 31 years of record keeping.  The vacancy rate is fallen to 4.9% for the first quarter of 2012, down from 6.2% for the same quarter a year ago.  In 1Q 2012 only 7,342 apartments became available, the smallest number since Reis started tracking this data in 1999.  According to the Kathleen Howley, writing for Bloomberg Businessweek, the rate of net new household formation was about 600,000 in 2011, or about 150,000 per quarter.  The increase is apartments available in 1Q 2012 is less than 5% of that number.

Articles at The Wall Street Journal and GEI News have discussed recent data which indicates that, in many markets, the cost to buy a home is lower than the cost of rent.  However, there will continue to be upward pressure on rental costs because millions of households are now locked out of the buying market due to inability to qualify for mortgages, both because of tightening underwriting requirements and because of impaired credit ratings due to recent mortgage defaults.  GEI News estimates approximately 15 million households will be locked into rental markets and out of home purchase markets over the ten-year period from 2008-2017 due to mortgage qualification problems.  Many of these were, or would have been, formerly (before the real estate bubble) likely home buyers.

The demand for rentals may continue to be high for several years at the expense of lower demand for home purchases.  This could accelerate the trend now starting (GEI News, 5 April 2012) for increased investor purchases of foreclosed owner occupied housing for conversion to rental units.  This trend could keep increasing the seeming economic advantage for purchase over renting for some time to come until enough prospective buyers can qualify for mortgages.

For more details on the outlook for the housing market see today’s analysis arcticle.

John Lounsbury

Sources:

• Apartment Vacancies Decline in U.S. to Lowest Rate Since 2001 (Bloomberg, via Financial Advisor, 4 April 2012)

• Housing Recovery Hinges on Household-Formation Gain, Case Says (Kathleen M. Howley, Bloomberg Businessweek, 30 November 2011)

• As Home Rents Head Higher, Owning Regains Its Appeal (Dawn Wotapka and Nick Timiraos, The Wall Street Journal, 4 April 2012)

• Reis Apartment Vacancy Rate (Sources:  Reis, Quarterly) (Calculated Risk, 4 April 2012)

• Home Purchase Cheaper than Renting in Many Cities – But So What? (GEI News, 25 March 2012)

• Investors Hit the Housing Market (GEI News, 5 April 2012)

• Shortage of Apartments Will Not Create a Building Boom (John Lounsbury, GEI Analysis, 6 April 2012)