We ought to know by now that every investment and housing bubble eventually bursts. So it should be no surprise that the three-year surge in demand for rentals is waning just as newly constructed apartment units are coming on the market.
A new report by Reis Inc., which tracks 79 markets, says the vacancy rate for apartment units dropped from 4.7 percent in the second quarter to 4.6 percent in the third. And although the 0.8 percent increase in rents in the third quarter is still considered strong, it is down from a 1.1 percent increase in the second quarter.
Improving home sales and low mortgage rates are attracting homebuyers and are partially responsible for the decreasing interest in rental units. And a potential oversupply of apartment complexes is poised to hit the market. The U.S. Commerce Department reports that multifamily construction starts were up 37 percent in August from a year earlier. According to Reis, between 160,000 and 200,000 new units will be available for rent in 2013.
For renters, the laws of supply and demand mean that they could find more rental options and see a break in monthly payments. For investors, many analysts are still seeing a demand for apartments, particularly in some metro areas. The recession's aftermath has left a wake of potential homeowners who do not want to buy and others who went into foreclosure and ruined their credit. That leaves a viable pool of renters. Real estate investment trusts, or REITs, that invest in apartment units are still strong as a sector, relative to other sectors, analysts say, but spreading the risk may be the best bet for the next couple of years as we continue with a weak recovery.
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