Meanwhile, multifamily rental properties are being affected by several forces. Demand is up due to foreclosures and fear by households of purchasing a single-family house or a condo unit. At the same time, supply of multifamily rental units is up as new product comes on the market. In addition, older, unsold properties are offered as rental units as some condo complexes are converted from condo to rental units, and as some owners who are unable to sell their property seek income by renting their property to reduce their losses or even make a small profit.

The net result of these conflicting forces was that asking rents for new properties were up in the first quarter of this year from first quarter 2008. Also, asking rents for existing apartments were up in the second quarter of 2009 from a year ago.

Vacancy Rates Set Some Records

In spite of the high demand that has pushed asking rents higher, rental vacancy rates spiked higher in the second quarter of 2009. Overall rental vacancy rates jumped to 10.6% from 10.1% in the first quarter and 10.0% from second quarter 2008¹. This is the highest vacancy rate recorded since collection of these data began in 1956.

Vacancy rates in smaller structures (2 to 4 units) rose to 9.4% from 8.8% both in the first quarter of this year and second quarter a year ago. Rental vacancy rates for buildings with 5 or more units rose sharply to 12.1% from 11.5% in the first quarter of this year, and 11.4% in the second quarter of 2008. The 12.1% reading is the highest vacancy rate on record since reporting of these numbers began in 1968. (Figure 1)

The regional rental vacancy rates were all up from their first-quarter readings. However, on a year-over-year basis, both the Northeast and Midwest turned in a slight improvement—7.1% and 10.4%, respectively, compared to 7.4% and 10.6% in the second quarter of 2008. Meanwhile, the rates for the South and West rose to 13.8 % and 8.9%, respectively, from 13.2% and 6.9% a year ago. The vacancy rate for the South is a record high since these data were reported stating in 1956.  View Table 1 here.
 

Absorption Rates for New Apartments Fall

The national absorption rate for new, unfurnished rental apartments² fell to 45% (seasonally adjusted) for units completed in the fourth quarter of 2008. This is down sharply from the 55% reading for apartments completed in the third quarter of 2008 and is the lowest absorption rate since the Census Bureau started reporting this series in 1987. (Figure 2)

On a not-seasonally-adjusted basis, the national number fell to 44% from 57% for the same quarter the previous year (also the lowest rate since reports on these data began in 1987). The Northeast region continued to have the highest absorption rate at 58%, almost the same as the 57% from fourth quarter 2007. The West and Midwest were next with 50% and 49%, respectively. Both were down substantially from the rate for units completed in fourth quarter 2007 (63% and 58%, respectively). The South sank to an abysmal 39% from 55% for units completed in fourth quarter 2007, the lowest level since the Census Bureau began reporting the regions in 1994. View Table 2 here.

Homeownership blipped upward in the second quarter of 2009 to 67.4% from 67.3% in the first quarter. This is likely to be only a momentary halt in the downward trend for the homeownership rate from its most recent peak of 69.2% in fourth quarter 2004. A little more than a decade and a half ago, the measure stood at 63.7% (first quarter 1993). The fall in the homeownership rate, of course, means that the rentership rate has risen over this same period. This trend is likely to continue for the near term—a positive for the outlook for rental properties, especially given the slowdown in multifamily housing starts. (Figure 3)

Rents on Existing Apartments Up from a Year Ago

National median asking rents for existing vacant apartments fell from $723 in the first quarter of 2009 to $715 in the second quarter, but were up from $686 in the second quarter of 2008, a 4.2% increase. While all sections of the country registered year-over-year increases in their median asking rents, only the South turned in a decline from the first quarter of 2009. In the South, median asking rents fell from $709 in the first quarter to $675 in the second, a 4.8% drop.

On a year-over-year basis, the South was up from $663, a 1.8% rise. The West continued its recent reign as the highest median asking rent in the United States with its $879, beating out the Northeast’s $842. Both areas turned in strong year-over-year gains, with the West up 5.1% and the Northeast up 6.0%. The Midwest continued as the most affordable area with a median asking rent of $599, which was up a relatively strong 4.0% from a year ago. The South was next most affordable with its median asking rent of $675, up a modest 1.8% from a year ago. Given the high vacancy rates recorded around the country, there is likely to be downward pressure on rents in the third quarter of this year. View Table 3 here.

Median Asking Prices for New Apartments Rebound in the First Quarter

Median asking rents for new apartments rebounded in the first quarter of 2009 (for apartments three months after completion in the previous year’s third quarter) to $1,067. This is a rise from $1,003 in the fourth quarter of 2009, which had been down from $1,133 in the third quarter. Median asking rents for new apartments were up for three of the four regions of the country. Only the West showed a decline in median asking rents in the first quarter compared to the previous quarter.

On a year-over-year basis, asking rents were up nationally, and for all of the four regions. The Midwest showed a surprising jump in the year-over-year median asking rents from $766 to $925, a 20.8% increase. Nonetheless, this was still the area with the lowest median asking rents of the four regions. View Table 4 here.

Absorption Rates for New Condos Mixed

Absorption rates of new condominiums and cooperatives³ were all over the place in the fourth quarter of 2008. Nationally, they fell from 56% in the third quarter to 40% in the fourth. That was also down from 56% in the fourth quarter of 2007. That significant decline in the absorption rate nationally was trumped by the plummeting rate in the South. There, the absorption rate sank to 38% from 73% in the third quarter, and 58% in the fourth quarter of 2007.

The West limped along at a 33% rate, down from 38% in the third quarter and 58% the year before. Undoubtedly, the low absorption rate is a reflection of the weak demand for housing and tighter credit conditions. However, in spite of these forces, there was a strong rebound in the absorption rate in the Northeast and the Midwest. Their rates rose to 53% and 47%, respectively, from 40% and 33% in the third quarter, and 47% and 38% the year before. View Table 5 here.

Asking Price for Condominiums Generally Up

Nationally, the median asking price in the first quarter of 2009 for condos completed in the previous three months rose to more than $400,000 from $382,500 in fourth quarter 2008, and from $350,000 in first quarter 2008. Median asking prices rose sharply in the Midwest to $304,800 in the first quarter from $248,500 in the fourth quarter, and $150,000 in the first quarter of 2008, an astounding 103 percent increase. On a year-over-year basis, the median asking price for both the Northeast and West rose to more than $400,000 in the first quarter. This was up from $350,000 for both regions a year ago. Meanwhile, the first quarter median asking price for the South fell to $341,300 from $359,100 in the fourth quarter, and $350,000 in first quarter 2008, a 2.5% decline. View Table 6 here.

Sales of existing condominiums⁴, have now risen for three months in a row. The June 2009 sales rate of 570,000 (at a seasonally-adjusted annual rate) is up 21.3% from the recent low of 470,000 from last March. June’s sales rate is the highest recorded in almost a year, since July 2008 existing condo sales were 595,000. Existing condo sales hit an all-time low in January of this year with 440,000 sales – the lowest number since the inception of this series in 1999. However, the inventory of existing condos for sale remains high, even as they dropped a bit in June. At the end of June, the inventory of existing condos for sale fell to 623,000 from 651,000 in May. That translated into a 13.4 months’ supply of exiting condos for sale based on June’s sales rate, a significant improvement over May’s 15.6 months’ supply. However, a 13.4 months’ supply is still too high. (Figure 4)