If there can be an upside to the housing crash, the apartment sector is where you'll find it.
Vacancies are down and rents are up, according to the latest data from Reis, Inc. Not only is the sector seeing improvements, it's seeing record improvements.
"It's the strongest performance in the third quarter we've ever recorded in ten years," says Victor Canalog of Reis.
National vacancies fell from 7.8% to 7.2% in the third quarter of this year, one of the sharpest quarterly declines in vacancy on record. Occupied stock increased by over 84,000 units, the highest quarterly number for net units absorbed by the overall market on record. That in turn pushed asking and effective rents up 0.5 AND 0.6% respectively. With rents pushing even higher in larger cities, where home ownership has become more difficult thanks to the credit crunch.
"The market segment that is primarily a rental segment today is simply not interested in buying a single family home," says David Nethercutt, CEO of Equity Residential, an apartment REIT (real estate investment trust).
"To take every penny of one's liquid net worth, to borrow money from one's parents, assuming their parents still have money, given what has happened to them during this financial crisis, and then to lever themselves 25, 30 to one to buy a single family home is not good asset allocation policy, and I think today's echo boom generation, they are not willing to trade their financial freedom to buy a single family home."
Adding to the upside is that the apartment sector did not see overbuilding during the housing boom; in fact, just the opposite. Apartment buildings were converted to much sought-after condos, and then when condos went south, builders were strapped for cash.
"With the credit crunch, there was just no construction financing available to build new apartments, and that is happening today as well. There is very little new construction financing available for well capitalized people to build new apartments at least in the markets in which we operate," notes Nethercutt, whose company is focused in major markets like New York City, Washington, DC, Boston and Seattle.