Apartment vacancies in nation rise in ’06
More U.S. apartments stood vacant last year as higher rents, low mortgage rates and Americans’ preference for home ownership drove down demand, according to a report by Reis Inc., a New York-based research firm.
The city of Los Angeles and Orange County, however, had the nation’s second- and third-lowest vacancy rates, the report said.
The vacancy rate in the 79 largest U.S. metropolitan markets rose to 5.9% from 5.7% a year earlier, the highest since 2004, Reis said. Rents rose 4.4% in 2006 to an average of $930.
“We’re not seeing runaway demand for rentals,” said Sam Chandan, chief economist for Reis. “The market for home ownership may be slowing, but more households would rather buy than rent.”
Rental demand picked up in the first half of last year as a series of 17 interest rate increases by the Federal Reserve pushed up mortgage rates and crimped demand for home purchases. As the supply of rental apartments expanded, mortgage rates started coming down in the second half, making home buying more attractive than renting to many Americans.
Four of the six areas with the lowest vacancy rates were in the New York region. New York City had the country’s lowest percentage of vacant apartments, with 2.3% of rentals standing empty. Fairfield County, Conn. (3.4%), central New Jersey (3.5%) and Long Island (3.7%) followed.
Los Angeles (3.1%) and Orange County (3.3%) were second and third, after New York City, on that list.
Colorado Springs, with an 11.8% vacancy rate, had the highest percentage of empty rental apartments.
Those differences were fueled by the higher number of rental units being converted to condominiums on the two coasts, Chandan said.
“Conversions are most prevalent where home prices are increasing fastest,” Chandan said. “That’s been the case on the two coasts and in Florida. Smaller markets have not seen the same house price appreciation that would create the necessary conditions for conversion activity.”
In the fourth quarter of 2006, rents climbed the most compared with the third quarter in Washington (2.7%), Portland, Ore. (2.5%) and Salt Lake City (2%). Rents rose 1.9% in New York City.
Rents in the fourth quarter fell from third-quarter levels in six metropolitan areas: Sacramento; Charleston, S.C.; Indianapolis; Birmingham, Ala.; Dayton, Ohio; and Omaha.