US Apartment Rents and Occupancy Up in Third Quarter

Across the U.S. rent and occupancy rates rose in the third quarter, although not at the same rate they were rising a few years back. From the Wall Street Journal:

Apartment rents rose 2.9% in the third quarter from a year earlier, up from 2.5% annual rent growth in the second quarter, according to real estate analytics firm RealPage Inc. A strong economy with better wage growth helped boost demand for apartments. So did a weak home-sales market, as tight supply may have prompted more renters to put off buying.

Source: Wall Street Journal

“There definitely doesn’t seem to be the pressure to buy that was there a little bit earlier,” said Greg Willett, chief economist at RealPage.

The rental market has still slowed significantly from a few years ago, when rents grew by 5.2% in the third quarter of 2015. But Mr. Willet said that “an upward blip rather than a downward blip” shows at least that the slowdown isn’t accelerating.

The share of occupied apartments during the third quarter rose to 95.8% in the third quarter from 95.4% in the second quarter, according to RealPage.

Interestingly, one factor that might be contributing to the stronger than anticipated rental market is the tax cut passed last year:

Barbara Byrne Denham, a senior economist at Reis, attributed stabilization in the rental market to the tax bill that passed last December. That bill almost doubled the standard deduction for individual and joint filers, making it less advantageous for most homeowners to itemize and take the mortgage interest deduction.

Wall Street Journal: It’s a Great Time to Rent (In Major Metros)

An article in the Wall Street Journal might come as a surprise to those of us who have been addressing the issue of housing affordability. The article cites the following:

It is a great time for anyone looking to rent an apartment: vacancy rates are rising and there are little or no rent increases in many major cities.

For landlords, though, the U.S. apartment market suffered its worst spring since 2010, near the depths of the housing crisis. Driving this dynamic is a flood of new apartments and weakening demand.

Rents rose 2.3% in the second quarter compared with a year earlier, the smallest annual increase since the third quarter of 2010, according to data from RealPage Inc. scheduled to be released on Wednesday. Rental growth was flat in major cities with otherwise strong economies—such as Austin, Portland, Seattle, Dallas and Washington, D.C.—due to large amounts of new supply…

Landlords have enjoyed a record 32 straight quarters of annual rent growth on average, as the U.S. economy strengthened and millennials delayed homeownership. But the reports of slowing, which began in a few markets in late 2016, have intensified to the point that the balance is shifting towards renters and away from landlords…

Data released Tuesday from another apartment data provider, Reis Inc. also showed a largely weak rental market across the country in the second quarter. The national vacancy rate ticked up to 4.8% from 4.3% in the second quarter of 2017. The number of additional units that were rented fell to just over 37,000 from nearly 53,000 a year earlier, suggesting demand was weaker.

But it’s not all doom and gloom:

Despite the recent slowdown, apartment owners note that the market is far from crashing and rent growth remains just below historic norms.

Little concern has arisen that the softening could have broader economic repercussions for the U.S. financial system.

Here in the Triad we’ve not had the same level of new construction compared to the major metro areas so we don’t expect to see too much of a softening in terms of rent or vacancy. Time will tell, of course, but this might be one of those times when being the tortoise in the race is a good thing.

National Vacancy Rate Rises to 5-Year High

While the apartment industry continues to perform quite well, there continue to be signs that it’s cooled off lately. According to a story in the Wall Street Journal the national vacancy rate has climbed from 4.1% in 3Q16 to 4.5% in 3Q17. From the story:

In all, apartment vacancy rates increased in 50 of 79 metropolitan areas, with many major cities experiencing high levels of construction that outstripped demand, according to data released this week by apartment-tracker Reis Inc.

“I think that’s a sign of what’s to come for the rest of the year,” said Barbara Byrne Denham, a senior economist at Reis. 

Charleston, S.C., suffered the biggest increase in the share of empty units, with a 2.6 percentage point jump in the vacancy rate from a year earlier.

The New York, Salt Lake City and Nashville metropolitan areas all experienced large increases as well.

That’s the bad news. The good news is that rents remain relatively strong:

Rent growth remained relatively robust considering the increase in vacancy, suggesting landlords are choosing to hold the line on price and let apartments sit empty if necessary. Average rents increased 3.3% in the U.S. in the third quarter compared with a year earlier.

Nationwide Rents and Vacancies Were Up in 2nd Quarter

The news was mixed nationwide for the apartment industry. From the Wall Street Journal:

The national vacancy rate climbed to 4.4% for the quarter from 4.2% a year earlier, according to data released by Reis Inc. Nonetheless, average rents across the U.S. increased 3% year-over-year in the second quarter to $1,335 a month. That was the smallest year-over-year increase since 2011.

Rents increased or remained flat in all but two of 79 metro areas. That is in contrast to the first quarter, when rents declined in 23 metro areas…

Landlords got a boost from weaker-than-expected deliveries of new apartment units, which might postpone more pain until later this year. Roughly 36,500 units were built during the second quarter, down almost 37% from a year earlier, as labor shortages took a toll on construction. Those units might end up hitting the market later this year, putting additional pressure on landlords.

Vacancy Rates Lower Than Expected

According to a recent report the apartment vacancy rate has remained lower than was projected at the beginning of 2016:

Industry experts predicted that with apartment supply set to peak this year, the vacancy rates would experience a noticeable increase. But a mix of continued strong demand and construction delays has forestalled a spike in the vacancy rate, though it has been inching up this year.

In the third quarter of 2016, the vacancy rate was 4.4 percent, up from 4.2 percent in the second quarter of 2015, according to Reis data. Reis researchers expect the vacancy rate to hit 4.6 percent by the end of 2016. When broken down by building types, Class A units have a slightly higher vacancy rate than more affordable Class C units.

The report goes on to say that rates are expected to rise again in 2017. You can read the full report here.

Rent Increases Cool Off

From The Wall Street Journal:

Increases in apartment rents slowed this spring, typically the period when landlords drive the hardest bargains, suggesting the once-booming market is beginning to cool.

Rents increased by 4% in the second quarter over the same time last year, according to real-estate researcher Reis Inc. That was less than the 5% year-over-year growth in the fourth quarter of last year, which marked the biggest jump in rents since the dot-com boom in the early 2000s.

Another research firm, Axiometrics Inc., showed an even sharper slowdown in year-over-year rent growth, to 3.7% in the second quarter from 5.1% in the same period last year.

But, rents are still rising faster than historical averages:

While overall rent growth is cooling and some developers are struggling to get the rents they anticipated, the market remains historically strong. Rents are still rising well above the long-term average of about 3% a year…

More than 127,000 new apartments were filled in the second quarter, easily exceeding the 67,550 units that were built during the period, according to MPF.

Why Having More Toddlers In Apartments Is a Good Thing

From an article about the best rent growth in 15 years comes this gem:

Demand for apartments is even stronger than experts anticipated. Younger Millennials in their early-to-mid-20s still make up the biggest block of new renters. But older Millennial renters in their early-to-mid-30s are staying in their rental apartments longer—even after they have coupled up and had children.

“There are a lot more toddlers in apartments today than was the case a few years ago … traditionally, those in that age segment have tended to leave the apartment market for single-family housing,” says Willet. “That young urban family segment is becoming more and more important to the apartment industry’s health.”

So how good is the US apartment market right now? Very good indeed:

New resident rents rose 5.2 percent over the 12 months that ended in the second quarter. That’s the biggest rent hike since 1999-2000, according to the latest data from MPF Research, based in Carrollton, Texas.

Obviously it’s not just families with toddlers that are responsible for the good times. The article explores many of the factors that are contributing to the good times – including construction delays that are helping prevent a glut of new units coming on line all at once – and it’s definitely worth a read.

Rent Growth in U.S. Slows in First Quarter, Vacancies Down Slightly

From the Wall Street Journal’s April 2, 2015 issue:

Apartment rental increases slowed in the first quarter from a year earlier, but the move is more likely a temporary blip than the beginning of a long-term respite for renters.

Nationally, average rents rose 0.6% to $1,131.72 during the first quarter, down slightly from a 0.8% rise in the first quarter a year ago, according to data from Reis Inc., a real-estate research firm. Over the last 12 months, rents increased 3.5%…

Across the country, the apartment vacancy rate declined slightly to 4.1% from 4.2%, the first decline since the beginning of 2014. “We, along with a lot of other people, thought we’d turned the corner and were going to see vacancy rates rising” due to new supply, said Mr. Severino.

But the flood of new apartments that economists expected didn’t materialize, partly due to the extreme winter. New construction declined during the quarter to 28,812 units, the lowest level of completions since the first quarter of 2013…

Still, in some markets such as Houston, there were early signs of supply pushing vacancy rates up. The vacancy rate there ticked up 0.2% to 5.8% over the last year, according to Reis.

Apartment Construction Pace Hits 25-Year High

According to Freddie Mac VP and Chief Economist Frank Nothaft, apartment construction is at a 25-year high, but the good news is that those units are being absorbed thanks in part to a continuing drop in home ownership rates:

Freddie attributes these absorption rates to the decline in the overall U.S. home ownership rate, which fell to 64.7 percent in the second quarter of 2014. That was the lowest mark since 1995. As home ownership falls, apartment vacancies have also dropped to their lowest level in 14 years.

Here’s a video of Northaft’s comments:

[youtube=http://youtu.be/huzxTwBRNJM]

WSJ: Rents Rise .8%, Household Income Stays Put

The Wall Street Journal reports that apartment rents continued to rise nationwide, but when adjusted for inflation household incomes are what they were in 1990:

The average monthly rent for an apartment rose to $1,099 in the second quarter, up 0.8% from the first quarter, according to data to be released Wednesday by real-estate research firm Reis Inc. REIS +0.18% That was the 18th consecutive quarter of rent increases. For the 12-month period ended in June, rents rose 3.4%.

Effective rents—which tend to be lower than asking rents—were up in all 79 U.S. metro areas tracked in the Reis report. West Coast cities that have been the model of recovery continued to top the list of highest rent growth for the quarter and over the past 12 months…

But household incomes have stagnated, resulting in a financial squeeze for a growing number of renters. Median household income was $50,017 in 2012, below 2007’s peak level of $55,627, after adjusting for inflation, according to U.S. Census Bureau data.

Later in the article they point out that vacancy rates stabilized, which might indicate that supply is catching up with demand, but at least one economist thinks that housing affordability will be an issue for years to come:

But Mark Zandi, chief economist at Moody’s, says affordability problems will likely remain, especially for lower-income households. “There’s going to be a very severe housing-shortage problem,” he said. “People are going to be in very difficult situations. This is a problem that’s going to be increasingly severe over the next few years.”