On October 28, 2011
Economist Commentaries, by Lawrence Yun, Chief Economist
The total number of rental households has increased to 38 million in the second quarter of this year, an increase of 1.4 million renters in the past 12 months. Because there has not been an overproduction in multifamily units in the past decade, higher demand for rental units has directly resulted in falling vacancy rates. The latest census data, which measures rentals of both single-family and multifamily units, report a 9.2 percent vacancy rate, the lowest since 2002. Private sector data from REIS on just multifamily units at mid-to-large cities in the U.S. fell to a 5.5 percent vacancy rate.
Overly tight mortgage underwriting standards have kept many renters from taking advantage of low home values. Moreover, elevated foreclosures have forced distressed homeowners into renting. The total number of home-owning households fell by 600,000
The dynamics of falling rental vacancy rates mean increased landlord pricing power. Naturally as a result rents have been pushed higher. According to the rent component of the Consumer Price Index, rents rose by 2.1 percent as of September from 12 months ago, after no rent increase in 2010. Most economists are calling for a further rise in rents in 2012, simply because of the very low levels of construction of apartment units.
Rising rents mean a better rate of return for real estate investors. Rising rents also mean more renters will be pulling out calculators to see if it makes more sense to buy a home.