Market Softens Less Than Expected

According to REIS the vacancy rate nationwide scootched up a tad in the first quarter of 2018, but so did rents. All in all the market has cooled, but not as much as some analysts feared due to the boom in construction. From the Wall Street Journal:

The apartment vacancy rate edged up to 4.7% in the first quarter, up from 4.6% in the fourth quarter of 2017, according to data released by Reis Inc. on Tuesday. The vacancy rate jumped from 4.3% a year earlier, while the average apartment rent grew 3.9%, Reis said.

By both measures, the market has cooled from the recent peak, when rent growth hit 5.8% in 2015 and the vacancy rate touched a low of 4.1% in the third quarter of 2016.

Still, the market has proved to be resilient, given a flood of new supply from developers hoping to cash in from the strong growth rate earlier in the recovery. A sharp slowdown in occupancy and rent growth hasn’t materialized…

Nearly 59,000 units per quarter were added in 2017, compared to the historical average of around 34,000 units per quarter.

The author of the article also points out that the new tax law, which reduced the tax benefit of owning versus renting, might have reduced the number of people actively pursuing homeownership.

Nationwide Rent and Vacancy Rates Stabilize

Due to fewer deliveries of new product, and a tight housing market, have stabilized the nation-wide rent and vacancy rates, and new data shows that there is reason to believe the trend will continue. From the National Apartment Association:

After a stagnant first quarter performance, most metro markets saw modest rent growth and stabilized vacancy rates in the second quarter. The national rent growth rate has also stabilized, measuring 3.6 percent annually, according to RealPage. The Western markets of Sacramento, Seattle and Riverside-San Bernardino led the way. Unlike previous quarters, the San Francisco Bay Area has finally begun to show signs of recovery, with the San Francisco, San Jose and Oakland submarkets all posting increases above 1.0 percent. Houston, however, continues to experience rent decreases, although the rate of decline has begun to abate as the energy slump slowly dissipates.

While an onslaught of new construction dampened occupancy rates in fourth quarter 2016 and early 2017, conditions improved during the second quarter. Data from RealPage indicated national demand for more than 175,000 units, far exceeding the 86,431 units completed. Nevertheless, the market is still working through the glut of apartments from the two previous quarters, with occupancy now sitting at a still-healthy 95 percent. This is down slightly from the 95.3 percent a year prior.

Outlook
Looking ahead into the remainder of 2017, a tight for-sale housing inventory coupled with rising mortgage interest rates may sideline more potential homebuyers, thereby buoying apartment demand. This could help support healthy rental demand in the traditionally more-expensive Northeast and West Coast markets. The slowing in multifamily starts at the national level is good news for markets overloaded with luxury product, but puts further pressure on the highly-sought-after Class B/C sector.

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.

Homeownership Rate Lowest Since 1967, US Rental Vacancy Rate at 6.8%

In 2Q15 the US homeownership rate fell to 63.4%, down from 63.7% in the first quarter of the year, the lowest it’s been since 1967.  The result has been an increase of about 2 million renter-occupied units in the last year, resulting in a vacancy rate of just 6.8% which is down from 7.1% in the first quarter. From BloombergBusiness:

Would-be homebuyers have been held back by stringent mortgage standards and wage growth that hasn’t kept up with surging home prices. The average household income in June was 4 percent below a record high set in early 2008, even as unemployment dropped to its pre-recession rate, according to Sentier Research LLC.

 “We’re still suffering the effects of the housing collapse and the financial crisis,” said Mark Vitner, senior economist with Wells Fargo Securities in Charlotte, North Carolina. “We may have another percentage point to go before we see a bottom” in the homeownership rate, he said.

Home values have jumped 34 percent since reaching a bottom in early 2012, making purchases more expensive for entry-level buyers. Prices in 20 U.S. cities climbed 4.9 percent in May from a year earlier, the S&P/Case-Shiller Index showed Tuesday.

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.

Axiometrics – Nationwide Apartment Occupancy Rate at 95 Percent

Axiometrics just released new numbers for 1Q14 and they indicate that the nationwide apartment market is still very healthy:

 National apartment occupancy reached 95% for the first time in at least six years in May 2014, according to research from Axiometrics, the leader in apartment data and research.

Additionally, effective rent growth for the year to date ending in May was 3.7%, the highest growth since the trough of the recession. With both improving occupancy and rent growth despite increasing unit deliveries, the apartment market is performing at a very high level.

“Axiometrics began tracking apartment data on a monthly basis in April 2008, and this is the first time since then that occupancy has been 95%,” said Stephanie McCleskey, Axiometrics’ Director of Research in a press release. “We tracked quarterly before that, and the second quarter of 2001 was the last time the market was at 95% for a quarter. It’s a pleasant surprise because it’s coming at a time when new supply is flooding the market.”

According to Axiometrics’ recently released May 2014 Market Trends Report, May saw a 20 basis-point (bps) increase in occupancy from the 94.8% recorded in April 2014, also the previous monthly high. Occupancy was 94.8% in August and September 2013.

Piedmont Triad Apartment Market Projected to Have 9th Highest Vacancy Growth

Here’s a happy way to end the day (insert sarcasm here): According to this piece at Multifamily Executive the apartment market in the Piedmont Triad is expected to experience the 9th highest rate of vacancy growth in the country – .8% – from 1Q14 to 4Q15:

Many prognosticators think the great run in the apartment market is coming to an end. After performing incredibly well for the past four years,the tide is starting to turn against the marketplace.

Sweeping changes over the next two years are going to cause fundamentals in the market to weaken for the first time since 2009. Significantincreases in construction activity, for example, are going to send a torrent of properties into the market over the next seven quarters. Of course, these changes won’t be uniform across the United States. So it’s critical to understand which markets are going to see the most challenges…

Many of the markets that are projected to see the largest vacancy increases over that interval are among the fastest-growing markets in the country as measured by metrics such as employment growth, population growth, and household formation rate…

Here’s a little more cheerful news:

It’s unlikely rent growth will turn negative in any market before the end of 2015, but growth could be muted, particularly in submarkets with a lot of new construction and fervid competition.

Still, it could be worse, like in Charlotte where the vacancy rate is expected to grow by 1.3% from 1Q14 to 4Q15, the highest rate in the nation.

 

WSJ: Apartment Market Rolls On

A story in the 6/25/14 Wall Street Journal focuses on the continuing strength of the apartment market as evidenced by some recent acquisitions in Denver:

The continued strength of the multifamily sales market has been a relief to many landlords who were worried the market would weaken. Rental apartment buildings were among the first types of commercial properties to rebound after the recession. But as early as 2011, some analysts were predicting the sector would cool off, fearing competition from improving home prices and the fledgling single-family rental market.

Those thunderclouds passed without a storm. The competition from the sales market has been weaker than expected largely because mortgage lending has continued to be restrictive.

Rental apartment values nationally are up 14% from the peak 2007 levels hit before the downturn, according to a Green Street Advisors index that tracks the performance of listed rental-apartment landlords. Sales volume in Denver increased 15% in the first quarter compared with a year ago, according to Real Capital Analytics Inc., a research firm.

Rents and occupancy rates also are up nationwide. In the first quarter of this year, rents rose another 0.6%—up 13% since the upswing began in 2009 —and vacancies fell to 4%, according to real-estate data firm Reis Inc.

 

National Rent Growth Slows, Occupancy Up

From Axiometrics:

Axiometrics Inc., the leading provider of apartment data and market research, reports that at the national level annual effective rent growth slowed to 3.2% in the second quarter of 2013. For comparison, annual effective rent growth in the second quarter of 2012 measured 4.0%. Further, Axiometrics’ data indicates that the effective rent growth rate has slowed for eight consecutive quarters as many Metropolitan Statistical Areas (MSAs) are decelerating from very strong growth the previous three years. Peak annual rent growth at the national level during this current cycle was 5.3% in July 2011…

While the national growth rate has been slowly decelerating over the past eight quarters, it should also be noted that the current growth rate is still above the long-term average of 2.1%.

Occupancy at the national level remained strong, measuring 94.7% in the second quarter of 2013. A year ago the occupancy rate stood at 94.3%. The improvement in occupancy has occurred despite an increasing wave of new apartment supply.