The apartment-rental market remained robust in the third quarter but, with home sales improving, the sector is showing signs of losing steam, according to a new report from Reis Inc.
The rental-apartment vacancy rate declined to 4.6% during the third quarter from 4.7% in the second, said Reis, a real-estate research firm.
That is the smallest quarterly improvement in the vacancy rate since the sector started recovering in early 2010.
Rents increased 0.8% in the third quarter to an average of $1,090 a month, according to Reis, which tracks trends in 79 markets. That is slower than the 1.1% increase in the second quarter but strong compared with historical averages.
“Fundamentals still remain relatively robust, particularly given the context of high unemployment and tepid economic growth,” Reis said in its report.
The firm said there are signs of cooling in the market, which has been one of the strongest real-estate sectors in recent years. Until now, demand has been brisk from people unwilling or unable to buy homes.
But recent signs of a rebound in home sales have stoked concern among apartment-building landlords and investors that demand could weaken.
“Households may feel a greater impetus to consider buying homes while mortgage rates remain low,” the Reis report said.
Housing experts say that it isn’t clear whether the slowing pace in the third quarter was due to increasing home sales or the weak economy. “Renters might feel attracted to the possibility of buying,” said Luis Mejia, director of multifamily research at the CoStar Group, which collects and analyzes commercial real-estate and economic data. But the “effect of the housing recovery on rental activity is something that is going to take longer to really become evident.”
The apartment-rental market also may be weakening because developers have responded to rising rents by adding supply. Research firm Zelman & Associates expects 235,000 units to be started this year, followed by 285,000 in 2013 and 320,000 in 2014.
“There is cause for concern in the near term that demand is abating for multifamily, just as a veritable avalanche of new projects begins to open their doors early next year,” Reis the report said.
The largest increases in rent in the third quarter were seen in tech-heavy San Jose, Calif., as well as in New York, where the private sector is adding jobs faster than the rest of the country.
Jason Martin, 22 years old, said he is having trouble finding an apartment in New York, where he is looking to pay as much as $1,500 for his share of the monthly rent.
“Things come up and you have to be able to move that day if you really want to get the place,” he said.
Some renters are having an easier time in Miami, where the vacancy rate is 4.2% and the average rent is $1,072. Chris Mahannah, a financial analyst, said he had no problem finding a two-bedroom apartment in the heart of the city during the summer. “There are actually a lot of places,” said Mr. Mahannah, 22.
Asked whether he is tempted to buy a home, Mr. Mahannah said for now he is content with renting. “I’m still trying to figure out career decisions and where I want to be,” he said. “I definitely want to own a home one day, but until I figure those things out, I think I’m just going to continue to keep renting.”
– Dawn Wotapka, wsj.com
Senior Director, Coldwell Banker New Homes Division
With over 200 condominium, townhome and loft projects successfully marketed
“Fewer properties for sale with such remarkably low interest rates make it a great time to buy and not a bad time to sell”