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US Vacancy Rate Rises For First Time Since 2009 In Wake Of Apartment Building Construction Surge

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

This is an interesting headline, and one that anyone paying attention to the domestic real estate market should pay close attention to. We know that millennials aren’t the ones buying new homes in America (that market has been cornered by private equity and hedge funds as well as foreigners laundering suspect money), but those millennials who do posses the cash flow to move out on their own definitely appear to be renting. Due to this trend of renting as opposed to buying by average citizens, there has been an enormous construction boom of apartment complexes across the U.S.

For what it’s worth, I’ve never seen construction in the Denver/Boulder area anywhere near what I am seeing now in the four years I have lived here. It looks like scenes from Miami in 2006.

We learn from Bloomberg that:

The U.S. apartment-vacancy rate rose for the first time in almost five years, a sign that supply is starting to catch up to rental demand after a boom in multifamily construction.


The vacancy rate rose to 4.2 percent in the third quarter from 4.1 percent the previous three months, the first increase since the end of 2009, Reis Inc. said in a report. Net leasing gains of 37,233 units lagged behind the 46,055 new units completed, the New York-based real estate research firm said.


Apartment developers are poised to finish building the most units this year since 1999, when the economy was booming, Severino said. With construction outpacing the net total of units likely to be leased over the next four years, “we expect the national vacancy rate to slowly drift upward,” he said.


So far this year, 113,024 apartment units have been built in the U.S., exceeding the 85,438 units completed through nine months of 2013, according to Reis.


Rents rose, partly because new units charge higher-than-average prices, Reis said. Effective rents, or what tenants pay after any landlord price breaks such as a free month, climbed 3.4 percent from a year earlier to an average $1,111 per month, and were little changed from $1,100 in the second quarter, according to Reis. Rents are at record highs on a nominal basis, according to the researcher.

So rents are still rising, but for how long? Unless incomes rise substantially, it will be difficult to continue this trend, which is why so many of the financial players have already started bailing on the “buy-to-rent” strategy.