Outlook for Rental Housing Strengthens as Condos Sag
The news for rental housing just keeps getting better while the condominium and co-op markets continue to sag, according to NAHB’s most recent multifamily market outlook.
For the first three months of this year, condo activity and prices declined across the board, NAHB says, while rental vacancy rates improved, absorption and rental rates rose and the number of renting households remained at a lofty level.
The rental vacancy rate for buildings with five or more units stood at 10.7% for the three months ending in March, up from 10.1% during the fourth quarter of 2007 but the same as in the first quarter of last year. The vacancy rate for all properties (of which 30% are single-family homes) stood at 10.1% in the first quarter of this year, up from 9.6% in the previous quarter and the same as in 2007’s first quarter.
Regionally, the rental vacancy rates for the year’s first quarter were 7.0% in the West, up from 6.8% in October to December of 2007; 7.3% in the Northeast, up from 6.6%; 11.8% in the Midwest, up from 11.1%; and 12.7% in the South, up from 12.3%.
The national absorption rate for new, unfurnished rental apartments within 90 days of their completion stood at 60% for units completed in the second quarter of 2007, up from 51% in the prior quarter and down from 67% during the second quarter of 2006. This was the highest rate of absorption in 12 months.
Absorption rates in buildings of five units or more in last year’s second quarter were 85% in the Northeast, 78% in the Midwest, 64% in the West and 53% in the South.
Driven by steady growth from minority renters, there were 35.7 million renter households during this year’s first quarter, an all-time high. The number of non-Hispanic white renter households actually declined by 100,000 from the fourth quarter of 2007 and now stands at 19.6 million after jumping by 500,000 in the final three months of last year.
There was a slight decline in the total number of households in the first quarter of this year, according to NAHB economists, all of which was attributable to a decrease in the number of owner households.
“Interestingly, the number of owner households has actually been flat for about two years,” according to NAHB’s report on the multifamily outlook. “There were 74.9 million owners during the first quarter of 2006 and just 200,000 more today. Given that the number of households grew by about 1.5 million over that period (almost all of which were renters), the rate of homeownership has necessarily declined somewhat.”
Asking rents for existing apartments have been improving, according to NAHB, and the median rent of $679 during the first quarter of 2008 was $6 higher than in the previous quarter, $20 higher than a year earlier and just $21 off the all-time high of $700.
Median asking rents in the first quarter were $825 in the West, $802 in the Northeast, $661 in the South and $568 in the Midwest.
Asking rents for new apartments have also been signaling strength in the market, with the median rising to $1,013 for apartments completed during the second quarter of 2007, $79 above the previous quarter. The rent was $1,150 in the West and the Northeast, $997 in the South and $750 in the Midwest.
“While some of the increase in asking rents may be due to strong demand relative to supply, some simply reflects changes in the characteristics of the apartments being built,” the NAHB multifamily market analysis says, with a slow upward trend in square footage. However, median square footage slipped from 1,197 in 2007 to 1,176 in the year’s final quarter and 1,180 in this year’s first quarter.
Sales of existing condominiums and cooperatives, meanwhile, are not only down from the torrid pace exhibited during the second and third quarters of 2005, but are now at their lowest level in several years, NAHB economists say.
From a peak of $229,700 last July, the median price for an existing condo receded to $221,100 in the final quarter of 2007 and $216,900 during the first three months of this year. “At this point, condos have given up all the gains of the past few years and are now back to where they were three years ago,” according to NAHB.
“Looking to the future, some multifamily developers have suggested that rising minority homeownership rates may be a strong source of demand for condos and co-ops,” the multifamily report says.
“Compared to single-family detached homes, multifamily condominiums use land more intensively and for that reason, can be sold at lower prices within a given market area. This can provide a path to homeownership that would otherwise be denied to minority households, who on average tend to have lower incomes than households headed by non-Hispanic whites.
“Given recent turmoil in the subprime mortgage market, a condo-based approach to increased minority homeownership probably has more appeal than a policy that would relax credit standards.”
For information on multifamily resources available from NAHB, e-mail Ann Marie Moriarty at NAHB, or call her at 800-368-5242 x8350.