Good News for Housing but not for Rentals

For two days in a row the news about housing has looked at least a little bit hopeful.  On Monday the national real estate firm REMAX announced an increase of 6.5 percent in the sales of existing homes in December and Tuesday the National Association of Realtors® reported that pending sales were up 6.3 percent that month.

So perhaps home prices and interest rates have both fallen to the point that we will, when nice weather arrives, see a flood of potential homebuyers into the market - or maybe December just represented a fluky blip.

But there is another measure of what may be going on in the housing market; the number of rental vacancies.

A few weeks ago an acquaintance reported that the small mid-range apartment complex he lives in seemed unusually quiet; the parking lot very empty.  He inquired of the super who told him that they had hit a staggering 75 percent vacancy rate.  One after one the tenants, some of them long term had bought houses in the area.  The gossip was, the super said, that his place wasn't alone.  The big luxury complexes in town were so heavily hit that several were reported to have lowered rents.

Anecdotal information to be sure, but there is evidence that this is going on all over the country. 

The Tucson Citizen (Arizona) recently reported that the vacancy rate in that city was running between 12 and 13 percent.  Vacancies in metro-Denver soared 16% during the third quarter of 2008 to 6.6 percent and Tampa, Florida rates jumped 1.1 percent to 7.6 percent.

The national vacancy rate is 6.1 percent.

Are all of these former apartment dwellers buying and moving into newly affordable homes?  Certainly not.  The Tucson paper stated that tenants were buying but that also stricter enforcement of immigration laws was forcing many tenants back across the border.  In cities hard hit by layoffs, singles and young marrieds are moving in with parents and, sadly, the numbers of homeless are soaring.

But the good news is still that many of these people are buying.

And the bad news is that rental housing may be another industry tettering on the edge of trouble.

Business Week recently paired with Axiometrics.com, a Dallas apartment data company to gauge the state of the rental market.  They came up with a list of 25 metro areas where not only are vacancy rates growing, but rents are falling.

Top on their list is Salt Lake City, Utah where the vacancy rate in the fourth quarter soared from 3.1 percent a year earlier to 6.8 percent, rents dropped and effective 5.7 percent over the year (an actual decline of 2.3 percent following an increase of 3.3 percent in 2007.)  Landlords are reported to be offering over two weeks free rent on average.

New York State has two of the biggest casualties.  The Suffolk/Nassau Counties area ranks second in the nation with a vacancy rate that actually fell from 4.3 percent to 3.1 percent.  Effective rents, however, dropped 4.7 percent (+1.5 to -3.2 percent.)  Coming in fourth is the whole New York City/White Plains/New Jersey megalopolis.  Its average vacancy rate rose from 3.4 to 4.0 in one year while rents had an effective drop of 3.5 percent from virtually stagnant in the fourth quarter of 2007 to a drop of 3.8 percent last quarter.

Tales abound about landlord concessions in Manhattan where tenants, as Business Week says, are finally in the driver's seat if they can afford to stay there.  Hard hit by layoffs in the financial sector, landlords are rumored to be offering as much as three months free rent and/or paying rental agent fees in order to keep warm bodies in their apartments.

Rents were already falling in late 2007 in the Raleigh/Cary, North Carolina area, now ranked as third hardest hit, where they had declined 0.4 percent in the fourth quarter of that year.  In the fourth quarter of 2008 they lost another 4.4 percent.  The vacancy rates in the metro area is 6.8 percent compared to 5.3 percent a year earlier.

Other cities in the magazine's top ten were Seattle-Bellevue-Everett, Washington and Portland-Vancouver-Beaverton, Oregon/Washington, ranked fifth and sixth respectively; San Jose-Sunnyvale-Santa Clara, California and Oakland-Fremont-Hayward, California, seventh and ninth; Charlotte-Gastonia-Concord, North Carolina, eighth; and Boston-Cambridge-Quincy, Massachusetts, tenth.