Summer time is usually the sweet season for apartment rentals. College graduates move into the big city, sign up leases and move in with their roommates. This sets the pattern for future years, as one and two year leases run out in subsequent summers and people move into new apartments. The vacancy rate usually drops during the summer months thanks to this dynamic.
But it didn’t happen this year. Apartment rentals hit an air pocket. The vacancy rate climbed to 7.8%, the highest level since 1986. And rates are expected to climb further during the fall and winter. The company that has been measuring this stuff since 1980 expects that the vacancy rate will climb higher than any time on record, according to the Wall Street Journal.
The second and third quarters typically are the strongest periods for rental landlords because they are popular times for people to move. But this year, “vacancies just continued rising,” said Victor Calanog, director of research for Reis.
During the third quarter, vacancies increased in 42 markets, improved in 26 markets and remained unchanged in 11 markets. Omaha, Neb., saw the largest rise in vacancies, with the rate rising 1.1 percentage points to 7.4%. Other big rises were seen in Memphis, Tenn., Indianapolis, Raleigh and Tacoma.
High vacancy rates, of course, push down rental rates. This hurts landlords and can trigger defaults on multi-unit residential mortgages and the securities they back. Effective rents have fallen 2.7% over the past year.
Worse, this is likely to be bad news for home sales. As rents decline, the relative expense of buying a home climbs. This in turn can push down the value of houses. In short, the climb in rental vacancies may undo some of the stabilisation in housing prices we’ve seen in recent months.
The driving factor in the rise in rentals is the jobless rate, which has been higher among younger workers who are more likely to rent. As long as unemployment keeps climbing, the vacancy rates will keep climbing and rents will keep falling.
So where is everyone going if they aren’t buying houses or moving into apartments? Have they just stopped dwelling? Not quite. People are doubling up, moving in with friends and relatives.