Apartment Vacancy Rate Highest on Record, Rents Plunge

[Joe Strickley]

by CalculatedRisk on 1/07/2010 09:11:00 AM

From Reuters: U.S. apartment vacancy rate hits 30-year high

The U.S. apartment vacancy rate rose to an almost 30-year high of 8 percent in the fourth quarter, and rents dropped in the biggest one-year slump in 2009, according to real estate research company Reis Inc.

In the fourth quarter, the U.S. apartment vacancy rate rose 0.10 percentage points from the prior quarter, and 1.3 percentage points for the year. At 8 percent, it was the highest national vacancy rate Reis has recorded in its 30 years of tracking the sector.
...
In the fourth quarter, U.S. asking rents fell by an average of 0.7 percent to $1,026 ... the largest single-quarter decline since 1999. For 2009 asking rents fell 2.3 percent, also the largest decline in 30 years. ... Effective rent fell 0.7 percent in the quarter to $964 ... The 3 percent drop for the year was more than three times the deterioration in 2002. [CR Edit: the article said "square foot", but this is clearly monthly rent]

"Never before have we observed rental properties in so much distress, both on the space and pricing side," Calanog said. ...

Note: the Reis numbers are for cities. The overall vacancy rate from the Census Bureau was at a record 11.1% in Q3 2009. This also fits with the NMHC apartment market survey.

A record high vacancy rate and a record plunge in rents! Anyone surprised?

And more rent declines are coming, from Nick Timiraos at the WSJ: U.S. Now a Renters' Market

Marcus & Millichap is to release a separate report on Friday that forecasts a further 2% to 3% drop in apartment rents over the next year, most of which will be concentrated over the next six months.

This is one of the unintended consequences of government policy: rising rental vacancy rates, falling rents, more losses for CMBS investors and local and regional banks, more bank failures, downward pressure on CPI (rent is largest component of CPI) ... and eventually more downward pressure on house prices as the massive government support for house prices slows (because of the price-to-rent ratio). Hoocoodanode?

http://www.calculatedriskblog.com/2010/01/apartment-vacancy-rate-highest-on.html