Wednesday, January 7, 2009

Apartments for Rent & Vacancy Rates



Interesting chart from this morning's WSJ. While the housing market is in shambles wilth 2-2.5mm excess homes for sale, the supply/demand fundamentals in the rental market remain generally pretty healthy. While rents will likely be pressured in the near-term given the state of the economy, several years of restrained building (less than 100K units per year since 2003), suggest the apartment market is structurally quite sound. This is a notable exception to the mid 80s housing downturn when apartment supply grew by 400,000/yr in each of 1985, 1986, and 1987.

Further, I also believe that homeownership rates will likely decline to the 65-66% range as lending standards remain tight and people seek to rebuild their decimated or non-existent savings (see historical chart of homeownership below). While a 2-3% decline from the current 68% doesn't seem too meaningful, each 1% decline represents about 1mm excess homes and would still be above the long-term homeownership average of 63-64%. This transition of displaced homeowners to rental units should provide support to apartment landlords.


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