In what is an interesting phenomenon, apartment vacancies have hit their highest point since 1986 in cities across the country.
According to Reis Inc., a New York real-estate research firm that tracks vacancies and rents in the top 79 U.S. markets, the vacancy rate reached 7.8% this summer, which is normally a strong period for rentals. And, the rate is expected to rise even higher in the fall and winter, when rental demand is weaker, pushing vacancies to the highest levels since Reis started keeping records in 1980.
So, what is causing the increase in vacancies?
One word: unemployment, which is close to 10%–a 26 year high. It seems that the high jobless rate is leading would-be renters to double-up or move in with family or friends. This has really put the squeeze on landlords because unemployment has been higher among workers under 35 years old, who are more likely to rent. As a result, rents across the country have fallen by 2.7%.
The second and third quarters typically are the strongest periods for landlords because they are popular times for people to move. But this year, according to Victor Calanog, director of research for Reis, “vacancies just continued rising.” The third quarter saw vacancies increase in 42 markets, improve in 26 markets and remain unchanged in 11 markets. Omaha, Neb., saw the largest rise in vacancies, with the rate rising 1.1 percentage points to 7.4%. Other significant increases were seen in Memphis, Tennessee; Indianapolis, Indiana; Raleigh, North Carolina; and Tacoma, Washington.
The falling rental market is happening while the housing market is finally showing some signs of steadying. The federal tax credit for first-time buyers and investor demand has helped to improve sales of low- and mid-priced homes this summer. However, some forecasters are warning that demand could fall when the tax credit expires and supply could increase as a result of more foreclosures hitting the market.
And, though a housing upturn could turn the highest quality renters into buyers, the move-out rate isn’t expected to exceed the levels caused by the housing boom in the early 2000s. As a result of the mortgage crisis, credit standards have become much more stringent, which will probably keep more renters where they are.
But, the housing bust has also caused a glut of new apartment inventory in some of the most overbuilt housing markets, as developers have been forced to convert scores of unsold condominium developments into rentals. As a result, Reis predicts that the vacancy rate will peak at well above 8% by mid-2010.