Apartment vacancy rate at its lowest level since 2001

by Bradley Associates Blog Information | April 11th, 2013

According to an industry report released on Wednesday, the U.S. apartment vacancy rate fell to its lowest level in more than a decade, but persistent stagnant income growth for U.S. workers has tempered the ability of landlords to raise rents.

According to a preliminary report by real estate research firm Reis Inc, the national apartment vacancy rate fell 0.2 percentage points to 4.3 percent in the first quarter, the lowest since the fourth quarter 2001. Rents, in contrast, grew by 0.5 percent, the least increase since the fourth quarter of 2011.

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 over the past five years. Equity Residential (EQR.N), Essex Property Trust Inc (ESS.N) and Avalon Bay Communities Inc (AVB.N) to push up rents are the apartment owners that were pushed down the vacancy rate by those factors.

Nevertheless increasing rents may be knocking up towards the ceiling of dull wages. According to the most up-to-date data available from U.S. Bureau of Labor Statistics, wages have scarcely been keeping up with price rises. Average hourly earnings rose 2.1 percent in February from a year ago, but the consumer price index was up 2 percent. February accorded similar gains in January and December.

“At some point, you can’t keep pushing these rent increases on since the majority of the tenants, if they’re not getting income gains to keep up with that, it’s just not sustainable,” Reis economist Ryan Severino said.

The overall demand for apartments has not restricted despite the fact that the housing sector bounce back. It may be beginning to chew at the very high end. Unlike most would-be home buyers, these tenants tend not to be hemmed in the rough mortgage requirements that leave many others incapable to buy homes.

They can and are choosing to buy, Severino said. Since the second half of 2010 through the first half of 2012, in buildings where the average rent was $3,000 or more, landlords have had to lower the rent to attract new tenants about 25 percent to 27 percent of the time that jumped to 44 percent in the second half of 2012, as those high income earners used their dollars to own rather than for rental payments Severino said. The 4.3 percent average vacancy rate in the first quarter was down from 5.0 percent the prior quarter and 8 percent from the cyclical peak in late 2009.

From the 79 markets, 48 of the that Reis tracks posted vacancy rates lower than the first-quarter average, with New York’s 1.9 percent vacancy rate being the lowest. Memphis, Tennessee had the highest vacancy rate at 8.5 percent.

To $1,102 per month, the average asking rent rose 0.5 percent in the first quarter. The average effective rent also rose 0.5 percent to $1,054due to the factoring months of free rent and other perks landlords offer to attract tenants. The highest effective rent increase up 1.5 percent to $1,078 per month and Seattle saw this. New York still is the priciest place to lease in the United States with an average effective rent of $2,989, up 0.2 percent. Federal cutbacks helped Washington D.C. register the only effective rent decrease, down 0.1 percentage point to $1,489 per month.

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