Data that is set to be released by Reis Inc., a real estate researcher , on Thursday shows that the apartment market boom felt during the past several years may have to level off.
With the market crash in 2008, millions of people who lost their homes moved to rental units. Moreover, the slow economic recovery left young people to remain as tenants than the previous generation. The leap in the number of renters led to higher rents and decline in vacancies in the last five years. Average effective rents rose 4.2% from the same quarter last year to $1,166, the first time since 2007 rents have risen more than 4%.
However, as the 3rd quarter ended, the vacancy rate increased to 4.3% due to the rise in supply from the 4.2% in second quarter. As some number of almost 200,000 additional apartment units hitting the market this year, economists say, "expect higher vacancy rates in coming quarters."
REIS Senior Economist Ryan Severino explained, "I don't think this is the death knell for the apartment market, but it is going to be more challenging over the next four to five years than it was over the last four to five."
However, even if the market is starting to even out, it will take time to start seeing relief from high rents.
Rents can still continue rising despite the increase in vacancy rate due to the high price of the new apartments getting into the market. An example would be San Jose, California wherein vacancy rate rose to 3.3% from 2.7%. Rents, on the other hand, still rose to 8.5% to $2023 from $1,299.
But, for some instances, the rise in supply would trigger some old landlords to cut rent, give out perks such as free rent, free parking spaces and even Uber gift certificates.
With vacancy rates rising and rents seen to slow down, not everyone agrees that the apartment market is going down with the rent. Axiometrics Inc., an apartment-research firm based in Dallas that uses a different methodology from Reis. The former said effective rent growth of 5.2% in the third quarter was the best performance since 2006.