Apartment Vacancy Rate Climbs As Net Absorption Falls
The apartment vacancy rate climbed 0.1 percent to 4.7 percent in the first quarter while net absorption and new completions fell to the lowest quarterly levels in three years, reported Reis, New York.
Reis Senior Economist Barbara Byrne Denham noted the apartment vacancy rate is “continuing on its upward path.” The vacancy rate has increased 60 basis points from a 4.1 percent low point in third-quarter 2016.
“The apartment market slowed at the end of 2017–just as the housing market started to take off–and then remained muted in the first quarter as it frequently does in winter months,” Byrne Denham said. “The momentum, however, should shift a bit in the next quarter or two as the housing market has stalled.” She said December’s Tax Reform and Jobs Act doubled the standard deduction and cut the deductibility of state, local and property taxes, which lowered the incentive for people to buy a home.
Net absorption fell to 27,875 units in the quarter, well below the 44,707-unit average quarterly absorption. Construction was also low at 39,917 units, trailing last year’s nearly 59,000-unit average. “We caution that the first quarter tends to see the lowest activity, but this was particularly low given the construction pipeline,” Byrne Denham said.
Still, median apartment rents are accelerating, said Zillow, Seattle. Over the past year, the median U.S. apartment rent rose 2.8 percent to $1,445.
“Rental appreciation slowed between 2015 and mid-2017, but is once again picking up steam, reaccelerating over the past nine months,” Zillow Senior Economist Aaron Terrazas said. “For-sale inventory is tight, and with home prices continuing their rapid climb, it’s becoming more and more difficult for renters to become owners, forcing them to rent longer than they otherwise would have.”
Terrazas said the searching for the perfect home to buy has become a drawn-out affair and rising house prices require more savings for a down payment. “Were it not for strong new apartment construction over the past half-decade, rental appreciation would be even stronger than it is now,” he said.
Reis said stronger job growth in recent months has supported demand for apartments. The U.S. added 276,000 jobs on average in January and February, up from an average increase of 221,000 jobs over the previous three months. Metros with the strongest job growth over the last twelve months included San Bernardino-Riverside, Calif. Austin, Texas, Orlando, Fla., Seattle and San Jose, Calif. All saw at least 2.9 percent job growth year-over-year.
