Apartment rents have made an about face during the first half of the year and they’ll continue to rise if vacancies tighten as predicted as more and more households become renters.
During the second quarter of 2010, the average rent for an apartment in the United States increased by $27 to $1,087, an increase of 2.5 percent according to the national rental site Rentjungle.com, which analyzes over 1 million apartment ads a month.
The national apartment vacancy rate stood at 7.8 percent at the end of June, according to Reis Inc., a New York real-estate research firm. That was down from the 8% vacancy rate during the first quarter, which was the highest vacancy rate in 30 years. Reis reported rents gained by 0.7 percent during the seasonally strong April-to-June period, the biggest quarterly gain in two years.
“We are seeing some encouraging signs in the overall national rental market,” says Rentjungle.com CEO Jon Pastor. “In the second quarter, rent nationwide was up by 2.5 percent when compared to the first quarter of 2010, which is the continuation of an improvement trend that started in January. Rent in Q4, 2009 was down by approximately 3 percent from the prior quarter, and during Q1 2010, rent was flat. So an increase of 2.5 percent in Q2, 2010 is significant.”
Last week the National MultiHousing Council reported that apartment sales volume was up and markets were tighter for apartments in the second quarter. Its Market Tightness Index, which measures changes in occupancy rates and/or rents, rose from 81 to 83. Fully 69 percent of respondents said markets were tighter (meaning lower vacancies and/or higher rents). This was the sixth straight quarter in which this measure has risen, and is the highest figure since July 2006.
“Demand for apartment residences has substantially increased thanks to modest improvements in the jobs market and the continuing decline in homeownership rates. While the level of transactions remains subdued compared with the boom years of 2005-2007, activity is gradually growing from the low levels of late 2008-early 2009,” said NMHC Chief Economist Mark Obrinsky.”
“Going forward, the near-term outlook for the apartment industry is likely to be tied to the pace of job growth,” Obrinsky added. “Over the longer term, positive demographic trends are likely to keep the demand for apartments growing.”
The brokerage firm CB Richard Ellis agrees. In March it forecast that US apartment vacancies, which hit an all-time high of 7.4 percent in 2009, will decline to 6.8 percent in 2010 as job losses stabilize and fewer new rental homes are added to the market. The nation’s vacancy rate will fall to, the property broker forecasts
RentJungle reported that two bedroom apartments saw the largest percentage increase in Q2, up 2% to $1,222 per month. One bedroom apartments were also in demand, up 1% to $970 per month.
“The rental market appears to have bottomed out in the last quarter of 2009,” said Rent Jungle co-founder Rick Ferris. “This is the first quarter that we have seen significant strength in the two bedroom market, indicating that larger apartments may be coming back in demand as the economy turns. It will be interesting to see if decreases in overall consumer confidence that were reported in June reverse this strong trend heading into the remainder of the summer.”
Across all apartment sizes, San Diego, San Jose, Norfolk, Providence, Hartford and New Haven all saw rent increases above 4 percent in the second quarter. The majority of cities realized increases in the 1 to 3 percent range. Tampa, Tulsa, Hollywood and Indianapolis however, all saw decreases in excess of 1 percent.