Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
We’ve mentioned the past few years how one ‘high growth’ area in the economy is the renters market. [May 24, 2011: Troubled Home Market Creates Generation of Renters] [Apr 8, 2011: Apartment Vacancies Drop to 3 Year Low, as Rents Rise] With many former home “owners” (I use the term sparingly since many of the 2004-2007 ilk had 100-120%+ type loan to value!) locked out of the market, and many young people with not enough money in their pocket to create a down payment, renting has come back with much vigor. Also keep in mind this recession caused a massive drag to household formation. [Apr 8, 2008: Recession Causes Relatives to Move in Together & Sharp Drop Off in Divorces] [Apr 9, 2010: 1.2 Million Households Lost in Great Recession – Through 2008] One net positive in the next 4-8 quarters should be a “building boom” of sorts in apartments ….
This WSJ story takes a look at some recent data:
- Landlords boosted apartment rents to record levels in the second quarter as demand from tenants sitting out the home-buying market pushed vacancy rates to their lowest point in more than a decade, according to a report to be released Thursday.
- Despite the sluggish economy, average rents increased in all 82 markets tracked byReis Inc. a real estate data firm. Average rents are now at record levels in 74 of those markets and now top $1,000 a month on average in 27 of them, including Miami, Seattle, San Diego, Chicago and Baltimore. “The market is in a very tight position,” Reis said in a research report. “There is a paucity of available units.”
- The nation’s vacancy rate fell during the quarter to 4.7%, its lowest level since the end of 2001, Reis said. That’s down from 4.9% in the first quarter of this year and from 8% in 2009, when millions of would-be renters were doubling up or living with family. [Sep 16, 2011: 7.5M More Americans Living in “Double Up” Situations versus 2007]
- With the economy slowly recovering, more people are looking for their own places. But many are opting to rent rather than buy due to tighter lending standards—including higher down payments—and because of concerns about job security.
- Reis said that this is only the third quarter in over three decades that the vacancy rate has been below 5%.
- Values of apartment buildings are soaring, contrasting sharply with the single-family housing market. In some cities, investors are now surpassing peak prices for rental property buildings. Analysts point out that the apartment sector may lose steam if the economy weakens further and tenants begin doubling up again or put up more resistance to rent hikes.
- Demand for rental apartments also may fall if some builders succeed with appeals to move renters into the market for single family homes. Another risk: construction. Developers are racing to deliver new apartment supply, particularly in hot markets including Washington, D.C, and Seattle. Zelman & Associates expects 235,000 units to be started this year, followed by 285,000 in 2013and 320,000 in 2014.
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