Where Are All the Apartment Renters?
A surprising trend is taking place in the rental market. The vacancy rate of apartments in the United States jumped to 7.5 percent in the second quarter of 2009, the highest it has been since 1987.
The vacancy rate was 6.1 percent in the second quarter of 2008, according to Reis, a New York-based research company. Forty-five of the 79 metropolitan markets they included in this study had a rise in vacancies. Metropolitan markets in New York, California and Nevada saw the highest declines in apartment residents.
Many troubled homeowners and first-time buyers were expected to move into apartments to wait out the real-estate downturn. However, the increasing unemployment rate is forcing many people to share an apartment or move in with friends or family. Also, banks are starting to change foreclosed properties into rental units because so few people can obtain loans to actually buy a home right now. This is increasing the number of vacant rental properties and driving down rental prices.
That’s right; rents are falling at a record pace. When you include all of the concessions and other incentives property owners give to renters, actual rent prices dropped 0.9 percent in the second quarter and 1.1 percent in the first quarter. The national average is now $975 per month.
New York City, which has one of the highest average rents in the country, suffered the biggest decline from a year ago. The average rent fell 5.8 percent to $2,680 per month. San Jose, Calif. was hit with the largest decline from the first quarter to the second. It dropped 2.9 percent to $1,430 per month.
Spring and summer are usually the best times of the year for apartments to increase sales because of college students moving after the end of the school year, among other reasons. But those normal gains have failed to materialize this year.
Another puzzling part of this rental decline is the fact that construction of new multifamily units, such as apartments and condos, jumped 62 percent in May to 131,000. This could increase the vacancy rate even more when these units come onto the market. Apartment renters are more price-sensitive right now, so builders might have to slash prices and even lose money on new buildings to get them filled.
By: Directinvestornews
July 10th, 2009 at 5:45 pm
Just lower the prices - MORE! Economics 101. Its hard, I know, because landlords are usually dumb and greedy in thinking that “Many troubled homeowners and first-time buyers were expected to move into apartments to wait out the real-estate downturn”. Even though prices have declined from record highs, they still have a long way to go (down) to become acceptable to what the market is willing to bear. Get off your high (priced) horses….. the only thing you should expect consumers to do is wait for the landlords to go bankrupt. Whats worth it… a flat sitting empty at a high price, or a flat that is paying you at a low price… make the choice.
July 10th, 2009 at 5:52 pm
Great comments, dfdsfsdf. Prices still have a long way to come down, don’t they? Historically, rent and home prices are almost double what they should be. People have to go into way too much debt to buy a house, and they have to pay too much to rent an apartment. Bailouts are not the answer to turn the market around. The market has to fundamentally change in order to return to its past working self. Thanks again for your great words!
Sincerely,
Direct Investor News
July 10th, 2009 at 8:56 pm
Rents in SF are still way, way too high. I was out the other night and a friend of a friend was complaining about not being able to fill two vacancies in a property he owned. When I asked how much less he was offering them for now, he looked at my funnily and said, “What do you mean how much less? I’m not going to lower the prices.” I just said, “huh,” but silently I was thinking, “Oh, you will, just wait…”
Much like the troubled home owners who refuse to accept reality, Landlords are still operating under the precept that things will be back to normal soon.
My guess is that there will be a breaking point, city by city or area by area, in which a lot of the bigger, newer condos and apartment buildings will drastically lower prices, and the smaller landlords will have no choice but to follow suit. Unfortunately, we’re not there yet and the vacancy rate will probably need to get quite a bit higher - something that seems like a sure bet given the employment picture.
Landlords need to get this into their heads: until jobs come back to your area, you need to cut prices until you fill up.
July 18th, 2009 at 1:05 am
There are really two issues at hand. You have the distressed homeowners who in many respects are moving back in with family and friends and the group of individuals that have not been homeowners the last three years that are buying homes.
Home affordabilty as a function of median home price, median family income and available mortgage rates make for the best environment that many have ever seen to buy a home. Throw in incentives from willing sellers and the first-time home buyer tax credit and many would be renters are buying and paying comparatively less on monthly payments.
The fed will stop buying mortgage backed securities at year end and the tax credit is slated to end 12/1. Pull artifically low rates off the table and additional incentives, and lets see what shakes out come 2010.