By Dawn Wotapka, The Wall Street Journal – Jan 6, 2014
U.S. Rents Rise Again as Market Tightens
Landlords raised rents by an average of 0.8% to $1,083 a month in the quarter.
Apartment landlords continued to push through higher rents in many cities in the fourth quarter, offering little relief for renters who have seen increases over the past few years. Nationwide, landlords raised rents by an average of 0.8% to $1,083 a month in the quarter, according to a report to be released Tuesday by Reis Inc., a real-estate research firm. While that is below the previous quarter’s 1% increase, it is above the 0.6% gain seen in 2012’s final quarter. Rents climbed 3.2% for all of 2013.
The vacancy rate, meantime, fell to 4.1% in the fourth quarter from 4.6% in the year-earlier quarter, remaining well below the 8% peak at the end of 2009.
“Demand for apartments remains strong,” wrote Ryan Severino, a senior economist with Reis. “Not even the seasonal weakness normally observed during the fourth quarters of calendar years had much if any impact on the market dynamics.”
Landlords have enjoyed the upper hand since the housing crisis as increased interest from renters coincided with little new supply of rental units. But developers are racing to deliver new apartments, raising the prospect that rental increases will slow—or rents could flatten—amid a flood of new developments.
Nearly 42,000 units were completed in the fourth quarter, the most since the fourth quarter of 2003, and about 127,000 for all of 2013, according to Reis. “New construction’s Pandora’s box has most definitely been opened,” Mr. Severino said. This is “a harbinger for what is to come over the next year.”
In 2014, completions should total more than 160,000 apartments, roughly one-third more than the long-term historical average, according to Reis. That could cause the national vacancy rate to rise slightly for the first time since 2009.
CoStar Group, another real-estate research firm, predicts new-apartment supply will peak this year at 220,000, but an additional 350,000 units will hit the nation’s 54 largest markets in 2015 and 2016 combined.
Much of the construction is in large cities with extensive public transportation, such as Washington, D.C., and San Francisco. Developers are targeting younger renters willing to pay top dollar for smaller units in buildings with lavish shared amenities, such as outdoor theaters and large gourmet kitchens for groups. Industry-watchers warn these markets in particular could see a correction.
But so far, none of the markets tracked by Reis saw average rents decline. A key reason is that rentals are attracting people who are unable to buy.
Rising mortgage rates, tighter borrowing requirements and higher home prices have put many people out of the housing-purchase market. Plus, many people remain burned by the housing crash and don’t want to own a home “Many current renters have financial, credit and mobility constraints,” said Luis Mejia, CoStar’s director of multifamily research, adding he isn’t as worried about apartment oversupply as some of his peers.
Rent-price growth remained hot in markets benefiting from the tech boom: Seattle saw the highest year-over-year rise, according to Reis. Rents there soared 7.1% in the fourth quarter from the same quarter of 2012, to $1,139. San Francisco and San Jose both saw rent-price gains of over 5% from a year ago.
New York City remained the most expensive market: Rent climbed 4.1% from a year earlier to $3,105. But its vacancy rate rose 0.5% from the prior year to 2.7%.
Jason and April Richland recently moved from a cramped space in Manhattan to a larger unit in nearby Jersey City, N.J., where their apartment boasts space for a wine rack and a view. “Love it. We can entertain now,” Mr. Richland said.
New Haven, Conn., remained the tightest rental market, with a vacancy rate of 2.2% in the fourth quarter. San Diego and San Jose, Calif., followed at 2.6% and 2.7%, respectively.
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