Interest Rate Roundup

Wednesday, April 04, 2007

Reis Inc.: Apartment vacancy rates rising

The rolling housing bust is claiming its next victim -- the apartment sector. According to the real estate research firm Reis Inc., the U.S. apartment vacancy rate climbed to 6% in Q1 2007. That's the highest since the second quarter of 2005, when it was 6.5%. Some key comments from a Bloomberg story on the news:

"'Our expectation is the national vacancy rate will rise modestly through the end of 2007,'' Reis Chief Economist Sam Chandan said in a telephone interview. 'We're starting to see a larger number of completions coming on line.'

"The supply of available apartments is expanding at a pace that will accelerate as warmer weather causes construction to pick up. In some markets, demand for rentals is growing so quickly that developers are converting to rentals buildings they had hoped to sell as condominiums, Chandan said.

This development comes as no surprise to me. Construction of traditional apartments has started to pick up. But more importantly, hundreds of thousands of single-family homes, town houses and condos that were snapped up by speculators hoping to flip them aren't moving. They're sitting empty. That "shadow" supply is flooding the rental market, providing real competition to apartment complex owners. Therefore, rental supply is rising, overall vacancies in the traditional apartment sector are climbing, and rent growth is poised to slow.

See this early March post for more details.


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