U.S. Apartment Vacancies at Three Year Low

by Landon M. Scott

The Economist magazine reports that apartment vacancies are at a three year low in the United Sates. As foreclosures continue at a healthy pace economists expect those vacancy levels to fall further, at least until rising rents, stabilized prices and looser credit make home buying attractive again.

More importantly – since vacancies have really nowhere to go but down from their post-crisis highs – the ratio of house prices to rents has reverted to their long run, pre-bubble levels; the ratio of house prices as compared to rents, globally at least, are below their 2001 levels.

But it is still quite a mixed bag. While multifamily looks to be recovering handily, construction and prices of single family homes, together with the still falling prices of retail and office properties, make a long bet on the entire industry over the short run a risky bet. But that’s not stopping the REITs from going full hog; some say it’s because they have money that must be placed in service or they’ll have to give it back to their equity investors, while others suspect that the REITs have detected a bottom and are getting in at the lowest/cheapest part of the real estate cycle.

Also, the Economist magazine reports that multifamily rents in the US are expected to increase 4% this year and next, which would make for real appreciation somewhere in the neighborhood of 2% if Treasury Inflation-Protected Securities (TIPS) are any judge.

The final nail in the coffin of this “Great Recession” is probably the fact that the private sector in the US has added 200,000 or more in the last three months and the price of oil is finally coming back to earth. If these two trends continue, even if single family homes prices fall 5-10% more and home construction is still anemic, common wisdom will probably be that we are on the mend. There are even signs of recovery in certain areas and price ranges for real estate here in Los Angeles, one of the hardest hit areas of the country. And if real estate recovery can make it here, well, you know the rest.

Comments on this entry are closed.

Previous post:

Next post: