Vacancy Rates Record Low, but Not Rents


As apartments and single family rentals put to bed their third quarters, there are worrisome signs amid the generally good news, according to CNBC’s Diana Olick.

The U.S. apartment vacancy rate fell to its lowest level in more than a decade, according to an industry report released recently. The national apartment vacancy rate fell 0.1 percentage point to 4.2 percent in the third quarter from the second quarter, according to a preliminary report by real estate research firm Reis Inc.

It was the lowest vacancy rate since the third quarter of 2001 when it was 3.9 percent. Some 47 out of 79 markets that Reis tracks posted vacancy decreases.

However, the record vacancy rate failed to pay off for landlords in higher rents.   While the average U.S. effective rent in the third quarter grew by 1 percent sequentially, and 3 percent year-over-year, the increase in rent was less than what would have been expected in such a tight market, Reis said.

A weak job market and stagnant wages receive the blame for landlords’ inability to charge higher rents.

“Demand has been so strong to push vacancy rates to such a low level, yet we haven’t seen rent growth of the magnitude we would normally expect,” Reis Senior Economist Ryan Severino said. With such a low vacancy rate, effective rent would have been expected to grow by about 4 percent to 5 percent year-over-year but was stymied by lack of job and income growth, Severino said.

“If median household income is growing at somewhere about 2 percent a year, give or take, once you back out inflation how much money is left for increased spending on rent? Not a lot,” he said.

Net absorption, the number of apartments rented over those that are unoccupied, reached 40,392, the most so far this year and 54 percent higher than a year earlier, a remarkable figure when you consider the numbers of single family rentals now in business. SFRs were not considered on the net absorption calculations.

New construction that is expected to come on line next year may fuel a rise in the vacancy rate and could slow the increase in rental rates, Severino said.

Over the past five years, the apartment sector has been the beneficiary of the U.S. housing bust, the economic recovery, high mortgage requirements, and a constrained supply of new apartments. Now. however, they’ll be competing with single family rentals, which have growth to represent 27 percent of the residential housing market.

Vacancy Rates Around the Nation

The 4.2 percent average vacancy rate in the third quarter was down from 4.3 percent in the prior quarter and from 8 percent in late 2009.

Apartment rents in the Seattle area rose faster in the past year than in any of the 81 other major U.S. metros tracked by a leading property-research firm.

New York-based Reis reports the average asking rent in the Seattle area climbed 6 percent in the past 12 months, outpacing increases in other bustling tech centers such as San Francisco, San Jose, Calif., or Boston.

Another firm’s data put Seattle’s rent increases at fourth-highest in the nation, up from sixth just three months earlier, but concurs with the 6 percent growth rate.

At 2 percent, New Haven, Connecticut had the lowest vacancy. Memphis, Tennessee had the highest vacancy rate, at 8.2 percent, reported Ilaina Jonas for Reuters.

The average asking rent rose 0.9 percent in the third quarter to $1,121.16 per month. The average effective rent was $1,073.29.

San Francisco and San Jose, U.S. capitals of the technology industry, saw the highest effective rent increase, both up 2.2 percent to $2,043.02 per month for San Francisco and $1,685.72 for San Jose.

New York remained the most expensive place to rent in the United States with an average effective rent of $3,049.37 per month, up 0.9 percent. The cheapest was Wichita, Kansas, at $528.95 per month, up 0.8 percent.
Photo Credit: striatic

About Author

Steve Cook is the editor of Real Estate Economy Watch and writes for a several leading outlets in addition to BiggerPockets, including Equifax and Total Mortgage. He also provides communications consulting services to leading real estate companies. Previously he was vice president of public affairs for the National Association of Realtors.

1 Comment

  1. Great post! I’ve gotten lazy keeping up with these metrics, so good posts like this is enabling my own laziness 😉

    My take is that generally, these trends expand to the entire region. The description of Seattle seems similar to Portland. The description of Memphis seems similar to the South. Kansas seems similar to most mid-sized cities in the area. Do you agree?

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