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 RealPageInc. 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.
“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.
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.
According to a report released by Zumper, rents in Winston-Salem and Greensboro have remained flat over the last year and remain among the most affordable in the country. From the Triad Business Journal:
According to the index, the price of a one-bedroom apartment in Greensboro averages $630 per month while a two-bedroom goes for $750. In Winston-Salem, a one-bedroom averages $680 per month and the cost of a two-bedroom is $750.
In comparison to other cities included in the survey, both Greensboro and Winston-Salem are bargains for apartment dwellers. Greensboro ranks as the 15th-cheapest city for rentals while Winston-Salem places 25th.
Crystal Chen, a Zumper researcher, said one thing that’s keeping rental prices low in the Triad and elsewhere is the fact that rates on home mortgages remain reasonable, making home ownership a viable alternative to renting for many. Chen said there were also a large number of apartments built in Greensboro and Winston-Salem over the past year, making the market more competitive and meaning landlords must keep rents reasonable in order to secure good tenants.
Here’s a link to the Zumper index page, and below are the charts showing Winston-Salem and Greensboro’s rankings.
Well, the apartment market is still on a tear. From Multifamily Executive‘s reporting on Axiometric’s report:
August tallied an effective rent growth rate of 5.1%, which was the seventh straight month that rent increases came in above 5%. That growth rate was an eight basis-point decline from July, but well above the August 2014 mark of 4.1%.
The year-to-date growth rate hit 5.7% in August, which was the highest mark since the recession. Axiometrics cautions that this number could decline in coming months since it fell in September and October of previous post-recession years.
Helping push rents was occupancy, which hit 95.4% in August. That was the highest rate since at least April 2008 and the sixth straight month the rate was 95.0% or higher.
“As apartment occupancy continues to increase, landlords don’t need to offer as many incentives to fill their vacant units,” said Stephanie McCleskey, Axiometrics’ vice president of research in a press release. “The national concessions rate the past two months has been the lowest since the Great Recession. August’s 0.5% rate was the equivalent of $5.80 per month discount.”
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.
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.
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.”
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.
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.