Friday, January 13, 2012

Apartment rents are expected to jump again this year as the U.S. economy creates more jobs and demand for rental housing grows.
  • A "For Rent" sign in Chicago.
    By Scott Olson, Getty Images
    A "For Rent" sign in Chicago.
By Scott Olson, Getty Images
A "For Rent" sign in Chicago.
A 2012 increase would make the third straight year of rising rents. More annual increases are expected as apartment builders hustle to catch up with demand.
"You could see 10 years of a strong apartment market," says Ronald Johnsey, president of apartment market researcher Axiometrics.
The firm, which surveys 20,000 properties a month, expects apartment rents to jump 5.5% in 2012. MPF Research sees a 4.5% increase, while researcher Reis expects a 3% increase, although that forecast may change, says senior economist Ryan Severino.
Reis estimates rents rose 2.3% last year. Axiometrics says 4.4%, and MPF says 4.7%.
Driving rents higher:
Job growth.IHS Global Insight expects the U.S. to add an average of 150,000 jobs a month this year compared with about 133,000 a month last year.
New jobs spur household formation. But with home prices still falling in many markets and tight lending standards making it harder for many to buy homes, more consumers will rent, Severino says.
Declining homeownership. The homeownership rate rose slightly in the third
quarter to 66.3%, the Census Bureau says. That's still down from 69% in the same quarter in 2006. RBC Capital Markets anticipates that homeownership will fall to 65.5% by year's end. Moody's Analytics says it'll drop to 65% by the end of 2013 or start of 2014. Fewer homeowners means more renters.
Little new construction. The apartment market — about half of all rental housing — added 37,678 units last year, the smallest increase in 31 years, Reis says.
Construction is picking up, but new units take time to complete. As they arrive, apartment rents will return to more normal appreciation rates of about 3% a year, says Greg Willett, MPF Research vice president.
Rents are rising fastest in San Francisco and San Jose. MPF and Axiometrics show San Francisco rents up about 14% last year and San Jose rents up 12%.
Preliminary Reis data show rents up 5% in both cities last year. In Austin, rents rose more than 7%, say Axiometrics and MPF.

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