Economic downturn leads to near record apartment vacancies
The vacancy rate for U.S. apartments in the second quarter has reached 7.5 percent -- the highest level since 1987, increasing 1.4 percentage points from a year ago, according to real estate research firm Reis Inc. The all-time record for vacancies was 7.8 percent in 1986. Victor Calanog, Reis's director of research told Reuters, "We are reaching that historic high very quickly." Moreover, Reuters writes that "the apartment buildings sector has led all commercial real estate categories on loan defaults."Is this good news or bad news? Let's take a look at both sides of the coin here, starting with the good news. Bear with me here, but maybe -- just maybe -- the number of vacancies has increased because of the housing situation. What if apartment tenants are realizing that home prices are at record lows, creating an excellent opportunity for people looking to snap up a home at a low price? It is entirely possible that savvy renters are looking to get out from their apartment agreements and are looking to strike out on their own.
Landlords are trying to use incentives to attract new renters, resulting in the effective rent dropping to $975 -- 1.9 percent lower than a year ago and 0.9 percent lower than the first quarter. Concessions have been increased across the country, with areas such as Las Vegas, San Francisco and San Jose (California) logging a 2 percent fall in effective rents. Reis expects this trend to continue for a few more quarters, as it expects more than 100,000 units from new construction to flood the market by the end of the year, keeping rents low and vacancies high.
I am not naive (although some have suggested otherwise in the past). This news is far more negative than it is positive as it shows that more people are out of an apartment. Perhaps they are staying with family members, perhaps they are finding roommates in order to defer costs and some may simply have moved. There can be several reasons that the number of renters may have dropped. Unfortunately, with some rents coming in higher than my mortgage payment, it is far more likely that we will see continued economic struggles leading to a further downturn in the number of renters.
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Reader Comments (Page 1 of 4)
7-08-2009 @ 10:17AM
d.i. said...
I have been saying this for months. the cost of living has risen much faster than salaries have been, and now look at this. people cannot even afford housing. it's ridiculous. it makes me wonder how long before the economic bubble truly bursts and our money is closer to worthless.
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7-08-2009 @ 1:35PM
carl said...
not too much longer!
7-08-2009 @ 2:17PM
Sarah said...
I agree; housing is way too expensive and they keep saying yes to it, no matter how they have to live; it's horrible. As long as they keep saying yes and group living they aren't going to get much of a break. They definitely can't save under these conditions even with group living.
7-08-2009 @ 10:37AM
bfash said...
This dose not make sense? If there is an all time high in home forclosures where are the home owners going? They have to be renting? I think the Feds should be giving renters a tax write off. There has to be a very high number of former home owners who are now forced to rent. Why do home owners get to deduct mortgage payments and renters get no value for there thousands of dollars in rent payments. My money is just as green!! Contact your state senators and let them know you want this change made.
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7-08-2009 @ 11:15AM
Mike McKibben said...
First of all, it is always better to own and pay a mortgage than it is to rent. You are just throwing your money into a hole that way...........your landlord's hole. Many "landlords" bought property during the housing bubble..........not to help out the little guy, but to fill their own pockets and pay their mortgages. Now, with the current economic crash and burn, they've been caught in their own web!
7-08-2009 @ 1:02PM
Ed said...
bfash said: Why do home owners get to deduct mortgage payments and renters get no value for there thousands of dollars in rent payments. /// Homeowners can deduct the interest they have paid on their mortgages, not the mortgage payments themselves. But I too wonder where all those that have been foreclosed on are living, if foreclosures are at an all time high, and apartment rentals are at an all time low... It's getting so I don't believe anything I hear, and only half of what I see....
7-08-2009 @ 4:05PM
Stokedj said...
Most are moving in with parents. Many illegal aliens are heading back home.
7-08-2009 @ 5:31PM
Ajonas45 said...
I completely agree and I am a Tax Attorney in Los Angeles.
7-09-2009 @ 5:52PM
Ed Gordon said...
HELLOOOO people. The answer to your question is obvious. The people who cant afford a mortgage NOR rent are HOMELESS and on the streets. Duh! Have you seen how much the tent cities in your town or city have grown?
7-08-2009 @ 10:40AM
Brannon said...
That's fine, they over charged people for rent for the past twenty years, I hope they invested that money wisely.
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7-08-2009 @ 9:18PM
Billy said...
Yes, I did... thank you. Then I sold the rental property and retired with the profits. Why didnt you do the same? I didnt start off rich, I lived pretty poorly for a number of years until I paid down debts.
7-08-2009 @ 10:47AM
sonja said...
I think lots of young people are moving back home with their parents or they are living with several other young adults in one apt. I am getting frightened again what is going to happen to this country. My husband has lost his job, but we are of retirement age, so will not effect us that much unless there is no Social Security left. If all falls apart we have a small vacation home that we could heat with wood and have plenty of land to get the wood from. Even in our present house we have a big wooded yard. I really do think about "what if" we get into a deep depression where we must be self sustaining and I do think we'd make it. But, how many others can say that?
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7-08-2009 @ 11:07AM
cabo79 said...
This has happened before. The people who have lost their house because of loss of job, have moved in with relatives. Same goes for renters, they move in with relatives. More and more that have minumal jobs are rooming together. Two or more families to a house. As many as eight room mates to a house. Over 25% of homes in this country have no mortgage.
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7-08-2009 @ 11:50AM
John said...
This is the same thing that happened in Japan after their real estate bubble burst. The same thing that happened in almost any society once their bubble(s) burst and people needed to rebuild their capital. Simply: Move in with someone else and reduce your capital expenditures. This is the same thing that businesses due....reduce costs.
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7-08-2009 @ 12:08PM
Teri said...
Evidently this article does not apply to Boston with rent for a one bedroom apartment is $1200 min to 2200 a month. Not to mention pet rent and all the other added fees apartment complexes are bleeding you for these days.
The top wage for most people here is $25 an hour and that is with a 4 yr degree. I am pretty sure Boston has the highest cost of living and they are now raising our taxes and tolls on top of it all. Is it any wonder why people are running from Massachusetts?
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7-09-2009 @ 8:55AM
dick said...
I already left as quickly as possible.
Join me!
Be sure to move to an area devoid of Democrats.
Seriously.
7-08-2009 @ 1:05PM
Mansard Commercial Properties said...
People the ages of 18-24 can't get jobs, so they live at home to accumulate enough capital to be able to sustain a life on their own in the future. This recent trend, which is becoming more popular among recent college grads, greatly effects apartment buildings and vacancy rates. Once employment rates go up, vacancy rates will go down, I'm sure most kids would like to get out there on their own anyway. http://www.mansardcre.com
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7-08-2009 @ 1:04PM
Kim said...
That would be fine if renters also got tax breaks like homeowners do, but if that would be the case then renters should also pay taxes like homeowners do. Keep in mind that it is the homeowners that pay property taxes that fund our public school systems and other public programs. That has always been unfair - that renter's chidren go to school for "free", while homeowners foot the bill through outrageous property taxes that seem to go up every year. Even homeowners who do not have children in school are paying for our schools.
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7-08-2009 @ 9:55PM
kim said...
kim, actually renters DO pay property taxes, its just paid indirectly, the renter pays the property owner, who then pays property taxes.
they just dont get any kind of break on their federal taxes
7-09-2009 @ 12:46AM
kirk holeman said...
I totally agree!! Exactly