America is building more apartments than renters want

The US apartment market remains overdeveloped, with supply outpacing what prospective renters are asking for, especially in the most expensive segment of the market.

US apartment occupancy slipped to 94.5% in the first quarter from 95.1% last fall, according to the apartment-data provider Axiometrics. Properties completed in late 2016 and 2017 are "scrambling" to find their initial residents, especially in the luxury market, the firm said in a report Thursday.

Over the past two quarters, demand for apartments was more than 100,000 short of the number of units that were available.

"Apartment markets are still solid, but we knew that this would be a year when apartment supply would outpace demand," Jay Denton, vice president of RealPage's Axiometrics business, told Business Insider. The company estimates that new deliveries would average 102,000 units per quarter for the rest of this year, compared to 82,000 in late 2016 and early 2017.

Two things are driving the current oversupply. The first is that the first and fourth quarters tend to be seasonally weaker because some people put off apartment hunting until the weather is warmer. The other reason is that the housing market has recovered to a point where it is difficult for apartment owners to maintain the level of occupancy they had in the past.

"This year's deliveries will provide relief from previous product shortages in much of the country," said Greg Willett, RealPage's chief economist. "Still, it would be surprising if overall demand kept pace with completions for the remainder of 2017, and there are clearly some individual neighborhoods becoming overbuilt in the luxury product segment."

Some new properties are offering concessions like a month of free rent to encourage lease signings. This is common when buildings are going through the initial leasing phase. But Denton added that New York, for example, is seeing more concessions being offered compared to a few years ago even for apartments that are not brand new.

Some of the fastest-growing markets for rents have not seen rapid enough economic recoveries to return construction to aggressive levels, RealPage said. Also, demand for apartments in the low-to-mid price range continues to be strong, keeping rents elevated.

This chart shows the markets where rents increased the most in Q1.