The recent housing data reports show that all three major composites ended the second quarter of 2012 with positive annual growth. As the housing market continues to recover, there are those who may wonder what effect that recovery will have on the recently booming apartment sector, which benefited from the housing crash.
In most U.S. markets, rent prices have continued to rise and vacancies are down and still falling. The Marcus & Millichap report for the second quarter of 2012 showed that, occupancy levels are near 95 percent on average nationwide, which has encouraged further development in the multifamily sector. According to the U.S. Commerce Department, multifamily housing starts were up 30 percent in July from a year ago, and multifamily permits were up over 47 percent. With the current low interest rate environment and the availability of capital, building apartments is easier and REITs and other large developers are dominating the market. While the increase in supply is a potential risk to the multifamily sector, with the recent high rent prices attracting investors to sour to the sector, there are those who believe that there will be room for both markets to co-exist.
The recent housing recovery is not expected to be an all-out boom at this time and will likely continue to be slow as other factors like unavailability of credit for home buyers and negative equity keep the single-family housing market in check. On the other hand, the recent economic slowdown means that there are many who have been unemployed, who may stay unemployed for an extended period. Then there are those who are slowly getting back to work and as they come back into the workforce the demand for apartment housing will continue. Another factor that could keep the market healthy is a cultural shift towards apartment living over the past decade. In recent years the United States has been facing an increasing level of urbanization and as more people move into (or back into) cities, they tend to occupy apartments, condominiums, and other attached multi-unit housing types. It is estimated that by 2021, over one-fourth of the residential stock of the United States will be in multi-unit residential buildings.
As for the rising rents, it is expected that at a future point they will slow down as the market forces of competition and supply and demand further kick into gear.
Michael Hobbs, PahRoo Appraisal & Consultancy
Twitter @Pahroo
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