Rents on the Rise: Shadow Inventory a Solution?

REISrnInc, an impartial source of commercial real estate data, has confirmedrnMortgage News Daily’s prediction earlier this year that renters could be facingrnsome substantial rent increases in the year ahead.  Thernfirm’s quarterly report shows that the vacancy rates for apartments droppedrndramatically during the first quarter and rents have begun to rise, albeitrnslightly, in some parts of the country. </p

Accordingrnto a Reuter’s story, the vacancy rate for apartments fell to 6.2 percent in thernfirst quarter from 6.4 percent in the preceding quarter.  This is the largest percentage drop in any quarterrnsince Reis Inc. began tracking the data in 1999.  This continues the pattern MND pointed out inrnJanuary from Census Bureau data showing the rental vacancy rate in the fourthrnquarter of 2010 was 9.4 percent, down 9 basis points from the rate in the thirdrnquarter and 1.3 percent lower than in the fourth quarter of 2009.  The Reis data appears to reflect only vacancyrnrates and rents in apartment complexes while the Census Bureau includes otherrntypes of rental units such as single-family houses.  While this results in different numbers, therntrend is obvious in each set of numbers. </p

Accordingrnto Reis, the tightening rental market is the result of an improved job market, therncosts of homeownership, and few new residential units coming onto the market.  Employment opportunities, especially for 20 torn34 year-olds is spurring the demand for housing.  At the same time the homeownership rate isrndeclining, in part because of the money required for a down payment and otherrncosts of buying. The supply of rental units grew by a net of 44,184 units withrnnew Construction accounting for only 6,000 units which the report said wasrnabout a quarter of the units generally built in a quarter.</p

Reuters quoted Victor Calanog, Reis, Inc.’s’ vice president of research andrneconomics as saying, “If this is a harbinger of what’s to come for thernnext quarter, then it certainly is good news for landlords and investors andrnmultifamily properties as a whole — maybe not for renters.” </p

The report said that so far rents have increased only slightly with thernaverage rent at $991 per month, an increase of less than one-half of onernpercent during the quarter but that some areas, especially metropolitan areasrnwith high demand could soon be looking at double-digit rent increases.  The higher rents so far are mostly the resultrnof landlords offering fewer and shorter free-rent periods as inducements. </p

The Census Data reported in MND showed that homeownership in the fourthrnquarter had already hit a 10-year low of 66.5 percent and Fannie Mae’s NationalrnHousing Survey also covered here  inrnFebruary showed that fewer Americans view a home as an investment and more planrnto delay homeownership. This could put further pressure on the rental marketrnand on rents.  A factor that may work inrnthe favor of renters, however is the shadow inventory of foreclosedrnhouses.  Many of these are beingrnpurchased by investors for rental but financing them has been tough.  There is also a large inventory of homes thatrnare not available for sale or rent because of physical deficiencies in thernproperty or because of legal issues that have arisen out of the foreclosure process.  If substantial numbers of the shadowrninventory ultimately become rental property it may slow the rent increases.     </p

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