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Apartment Vacancy At 30-Year High; San Jose Leads Rent Declines

January 7, 2010

REIS put out data yesterday which pegs the vacancy rate for US apartments at a 30-year high. The vacancy rates now stand at roughly 8% according to REIS data.

Rents fell 3% last year, according to Reis, led by declines in San Jose, Calif., Seattle, San Francisco and other cities that had brisk growth until the recession.

The article also discusses supply

The 120,000 units that came onto the market last year, including some busted condo projects that had to be converted to rentals, represented the most new construction since 2003, according to Reis.

Locally, investors have had an voracious appetite for any condos or homes which come even close to cash-flowing. Prices have already increased on the low end, but the falling rents continue to keep the pressure on the “price-to-rent” ratio, making the recovery in house prices (locally at least) a bit less meaningful. In fact, there is evidence that government actions will keep the market choppy for a while.

The Governor, in his State of the State, indicated that he is planning on introducing a bill that would provide new and existing homeowner’s in California with a $10,000 tax credit (we don’t have the money anyways, so what the hell, right?). This would be on top of the federal tax credit.

Unfortunately, what will make the rental market stabilize is an increase in interest rates. So long as they remain as low as they do, the FHA keeps making ridiculously low-down payment loans, and the government continues to subsidize purchasers, then rentals will be under pressure.

Once rates start to change (they’ve begun to creep up a bit in the past few weeks), the vacancy rates in rental housing should start to stabilize. But until people and investors have an incentive to buy something which cash flows or comes close to it with some potential upside in value appreciation – and liquid funds earn a paltry 1% with with looming inflation fears as a kicker – more housing stock will continue to hit the market and put pressure on vacancy and rental rates.

[via WSJ]

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Categories: Commercial Real Estate Investing | Miscellaneous | Trends
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Jason January 31, 2010

While multifamily has seen a decline over the last couple of years, student housing/off campus housing has held strong and continues to be a bright spot in the commercial real estate industry. With the dollar low, European and Asian investors are continuing to add stable assets to their U.S. portfolios.


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