Apartment Market Improvement?

I’ve been meaning to get to a WSJ article from earlier this week:  Apartment market is showing early signs of improvement.

I wonder what the root cause of this might be:  Is it the rate increases? Are people getting priced out of the home purchase market?  Is immigration more robust or rapid than I imagined? 

WSJ excerpt:

Wsj_apartm04102005183324"After a nearly four-year slump, which is good news for apartment owners but potentially bad news for renters.

The vacancy rate for the top 64 metropolitan apartment markets in the U.S. fell to an average of 6.6% in the first quarter, from 6.7% in the fourth quarter and 7.1% in the year-earlier quarter, according to new quarterly statistics from Reis Inc., a New York-based real-estate research firm. Rents also rose in the quarter.

The number of new leases signed and the increase in rents in the first quarter mark the apartment industry’s strongest performances in those categories since 2001, when the rental market began its slide. The U.S. apartment market has been hurt by low mortgage rates that turned some would-be renters into home buyers, a weak job market that cooled tenant demand, and oversupply in some areas. The national apartment vacancy rate rose to an average of 6.7% in 2004 from 3.1% in 2000."

Intriguing . . .


Apartment Market Shows Signs of Life After 2001 Slump

Ray A. Smith
The Wall Street Journal, April 11, 2005; Page B1

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What's been said:

Discussions found on the web:
  1. Eric Stokes commented on Apr 17

    I know little about how CPI is calculated, but I vaguely recall some discussion about the fact that it is based on rent rather than mortgage payments. If my recollection is correct does this mean an increase in rents will translate into a bigger rise in CPI?

  2. spencer commented on Apr 17

    All you need to do is look at the supply numbers.

    I quickly looked at housing starts for 5 or more units — apartments — and there has been no growth in the construction of apartments for 5 years.

    What do you know, supply and demand analysis works.

    Eric you are right that the CPI for housing is the homeowners rental euivalent that measures what people think there home would rent for. But I have never found any relationship between that CPI data and anything else.

  3. Larry commented on Apr 17

    In many areas of the country, entry level prices and higher rates have kept/pushed people into apartments. However, another problem in my market, Phoenix/Scottsdale continues to be a shrinking supply caused by the rebirth of the condo-conversion market. Condos, nationwide, have become the new entry-level house for many complete with ease of ownership. And, many retirees can now trade down to condos without a tax penalty.

  4. Chris Sgarlata commented on Apr 20

    Another factor to look at:

    Apartment to condo conversions – helps to tighten apt market supply.

    In Dallas and LV (two markets I follow) the apt-to-condo conversion trend is marked.

    After all, apt owners had to do *something* after three years of historically low long rates resulted in…

    1) large numbers of people moving into homes (at least until their variable rate loans and overpriced abodes bankrupt them…) and

    2) an unprecedentedly bad job market (0 net private sector jobs in 4 years?!!! Worst since 1939 per BLS) crushed new household formation (anybody have direct household formation stats?).

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