According to an industry report issued earlier this week, U.S. apartment rental vacancy rates fell to their lowest level in more than a decade. Resulting availability has therefore made it increasingly more difficult for prospective renters to find a place to live. More specifically, the national apartment vacancy rate now rests at 4.2 percent, dropping 0.1 percentage point from the second quarter of 2013.
The report reflects the lowest vacancy rate the U.S. has experienced on a national level since the third quarter of 2001. At that time, the rate settled at 3.9 percent.
The lower vacancy rates suggest that Americans favor renting homes over buying them. This may be due to tighter mortgage restrictions, low inventory levels or an inability to come up with an acceptable down payment in today’s market. Despite the decline in the vacancy rate, a weak job market and stagnant wages have prevented a commensurate rise in rents.
According to Reis Inc., “While the average U.S. effective rent in the third quarter grew by 1 percent sequentially, and 3 percent year-over-year, the increase in rent was less than what would have been expected in such a tight market.”
Ultimately, vacancy rates have been suppressed because of the exponential demand for a rental property. Too many people simply can’t afford to own a home under the current market conditions.
While rent growth should have been directly correlated to the vacancy rate, we have not seen prices increase as projected. Subsequently, rental prices should have seen a four or five percent increase in their year-over-year rates, but a distinct lack of jobs and income stymied the possibility.
According to Reis’ Senior Economist Ryan Severino, “If median household income is growing at somewhere about 2 percent a year, give or take, once you back out inflation how much money is left for increased spending on rent? Not a lot.”
Ever since the housing sector was subjected to the latest downturn, previous homeowners transitioned from a life of ownership to that of renting. Landlords effectively became the beneficiary of the housing sector bust because people could not afford to own a home with little to no equity. However, vacancy rates have further diminished because of the current recovery, tight mortgage restrictions and a distinct lack of new apartments.
Conversely, those same factors have awarded apartment owners the opportunity to raise rent. As a result, areas like San Francisco and San Jose saw the largest rent increases. Each, in a region dominated by the technology industry, experienced a 2.2 percent increase in rent rates. The average rent in San Francisco now sits at $2,043.02 per month while San Jose’s is $1,685.72 a month.
New York remained the most expensive place to rent in the United States with an average effective rent of $3,049.37 per month, up 0.9 percent. The cheapest was Wichita, Kansas, at $528.95 per month, up 0.8 percent.