REIS Inc, an impartial source of commercial real estate data, has confirmed Mortgage News Daily's prediction earlier this year that renters could be facing some substantial rent increases in the year ahead. The firm's quarterly report shows that the vacancy rates for apartments dropped dramatically during the first quarter and rents have begun to rise, albeit slightly, in some parts of the country.
According to a Reuter's story, the vacancy rate for apartments fell to 6.2 percent in the first quarter from 6.4 percent in the preceding quarter. This is the largest percentage drop in any quarter since Reis Inc. began tracking the data in 1999. This continues the pattern MND pointed out in January from Census Bureau data showing the rental vacancy rate in the fourth quarter of 2010 was 9.4 percent, down 9 basis points from the rate in the third quarter and 1.3 percent lower than in the fourth quarter of 2009. The Reis data appears to reflect only vacancy rates and rents in apartment complexes while the Census Bureau includes other types of rental units such as single-family houses. While this results in different numbers, the trend is obvious in each set of numbers.
According to Reis, the tightening rental market is the result of an improved job market, the costs of homeownership, and few new residential units coming onto the market. Employment opportunities, especially for 20 to 34 year-olds is spurring the demand for housing. At the same time the homeownership rate is declining, in part because of the money required for a down payment and other costs of buying. The supply of rental units grew by a net of 44,184 units with new Construction accounting for only 6,000 units which the report said was about a quarter of the units generally built in a quarter.
Reuters quoted Victor Calanog, Reis, Inc.'s' vice president of research and economics as saying, "If this is a harbinger of what's to come for the next quarter, then it certainly is good news for landlords and investors and multifamily properties as a whole -- maybe not for renters."
The report said that so far rents have increased only slightly with the average rent at $991 per month, an increase of less than one-half of one percent during the quarter but that some areas, especially metropolitan areas with high demand could soon be looking at double-digit rent increases. The higher rents so far are mostly the result of landlords offering fewer and shorter free-rent periods as inducements.
The Census Data reported in MND showed that homeownership in the fourth quarter had already hit a 10-year low of 66.5 percent and Fannie Mae's National Housing Survey also covered here in February showed that fewer Americans view a home as an investment and more plan to delay homeownership. This could put further pressure on the rental market and on rents. A factor that may work in the favor of renters, however is the shadow inventory of foreclosed houses. Many of these are being purchased by investors for rental but financing them has been tough. There is also a large inventory of homes that are not available for sale or rent because of physical deficiencies in the property or because of legal issues that have arisen out of the foreclosure process. If substantial numbers of the shadow inventory ultimately become rental property it may slow the rent increases.
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