Despite Slowdown, Apartment Market Sees Modest Improvement
With job numbers and economic growth weaker than expected, vacancy rates are flat and projections are moderated. But modest improvements are expected over the coming year, according to the National Association of Realtors.
Lawrence Yun, NAR chief economist, said the weakening economy will slow the growth in demand for space. Disappointing economic growth in recent months means a slower recovery for most of the commercial real estate sectors, although multifamily housing continues to benefit from pent-up demand resulting from an abnormal slowdown in household formation in recent years, he said. Many young people, who normally would have struck out on their own from 2008 to 2010, had been doubling up with roommates or moving back into their parents homes. However, theyve been entering the rental market as new households in stronger numbers this year. As a result, apartment vacancy rates are declining and rents are rising at faster rates.
A healthy recovery is already occurring in the multifamily sector, with average apartment rent expected to rise 2.5 percent this year and another 3.2 percent in 2012, Yun said. Normally, rising rents correspond to rising home prices. However, this isnt happening in this recovery because buyers are constrained by unnecessarily restrictive mortgage underwriting standards, so the underlying demand isnt drawing inventory down quickly enough to support price growth.
Looking at commercial vacancy rates from the third quarter of this year to the third quarter of 2012, NAR forecasts vacancies to decline 0.9 percentage point in the multifamily rental market.
The apartment rental market ” multifamily housing ” should see vacancy rates drop from 5.5 percent in the current quarter to 4.6 percent in the third quarter of 2012. Apartment vacancies below 5 percent generally are considered a landlords market.
Areas with the lowest multifamily vacancy rates presently are Minneapolis, 2.5 percent; New York City, 2.8 percent; and Portland, Ore., at 2.9 percent.
Multifamily net absorption is likely to be 237,700 units this year.
The National Association of Realtors, The Voice for Real Estate, is Americas largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
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