A Major Problem In The Apartment Rental Market Is Finally Showing Signs Of Easing

REUTERS/Noah Berger

Tight supply across the housing market is keeping would-be buyers and renters on the sidelines. Those in the market have been paying up for what they want.

Renters have it particularly bad. Despite the construction boom in multi-family units, rent prices have continued to surge as demand outpaces supply.

A recent Reis report featured by Calculated Risk states that the apartment vacancy rate has remained unchanged at multi-year low of 4.1% in the second quarter of 2014.

The only time the vacancy rate was lower was in 1999 and 2000 during the dot.com boom-and-bust. Consequently, rent prices in the immediate future should remain high.

Reis Senior Economist Severino writes that demand, nevertheless, remained resilient even as "asking and effective rates both grew by 0.8% during the second quarter". Even though the rent growth looks weak by historical standards - primarily because of the low vacancy rate - it continues to accelerate.

Reis

On a more encouraging note, the report indicated that the vacancy rate drop is decelerating and that the construction market is trending upward. In the last twelve months the national vacancy rate "has declined by 20 basis points, slightly below the pace of the last few quarters". Severino writes that this has been anticipated because demand growth is moderating a bit while supply growth is accelerating.

Regarding the construction market, Q2 levels of construction showed a rebound after the "muted" construction activity in Q1 (which Severino attributes to the severe winter). Severino states that the market's overall trend is "clearly upward" and it continues to deliver "the highest level of new units since 1999 when the economy was growing at a far faster pace than it is today".

Renter demand has been stronger than buyer demand. Even though there are claims that mortgage lending is easing up, it actually remains much tighter than it was during the early 2000's. Additionally, people have not forgotten the pain of the housing bubble burst, and thus they are not comfortable with buying new homes.

To see the full report on Calculated Risk click here.