Apartment Vacancies Rise Even as Foreclosures Soar

With rising foreclosures driving more and more Americans out of home ownership, you'd think it would be a good time to be a landlord. After all, most people who lose their homes become renters.

But the economic downturn is hitting rental properties was well, with apartment vacancies on the rise across the country. The average vacancy rate for the top 79 U.S. markets has risen to 7.2 percent, according to the real estate research firm Reis, Inc., a full percentage point higher than it was two quarters ago. Rents are down slightly as well, decreasing 1.1 percent in the first quarter of the year.

Reis goes on to predict that rents could be down as much as 2 percent for the year and vacancy rates could top 8 percent.

Failed condos becoming apartments

So why the decline at a time when large numbers of renters ought to be flooding the market? Reis suggests that one major reason is that large numbers of failed condominium projects are being converted into rental properties. In addition, financially stressed consumers are increasingly taking on or becoming roommates in order to keep costs down.

In addition, many young people who were living independently are finding themselves forced to move back home with their parents, either because of their own reduced circumstances or because their parents are no longer able to afford to subsidize them.

The Wall Street Journal reports that the area with the nation's highest rental vacancy rates is Columbia, S.C., at 13.2 percent. Two of the five highest areas are also in areas that have been some of the hardest hit by the foreclosure crises: Jacksonville, Fla., with 12.7 percent vacancies and Phoenix, Ariz. with11.3 percent. As one might expect, New York City had the lowest vacancy rate but even there, vacancies have risen sharply, rising to 3.4 percent from 2.3 percent over the last quarter.

Better deals for those who ask

The increasing vacancy rate is driving many landlords to offer better deals. Reis reports that half of all apartment buildings reduced rents in the latter quarter of 2008 or the first quarter of 2009 - the highest rate since the company began tracking the data in 1980. "Landlords are under increasing pressure as vacancies are moving up," said Victor Calanog, research director for Reis. "It's a great time to find deals, even if you're about to renew your lease. Just be prepared to follow through on any credible threats."

A Reis/Business Week survey found that the nation's most affordable rents are to be found in Oklahoma City, with rents averaging just 12 percent of income. Other low-rent cities include Indianapolis, Denver, Fort Worth and Cleveland. New York remains the most expensive market, with rents averaging 57 percent of income but even there, about 75 percent of all rental properties reduced rents in the first quarter of 2009, Canalog reported.

With the increase in vacancies, more landlords are being driven into bankruptcy. According to Standard & Poors, the multifamily sector had the highest delinquency rate of all commercial mortgage-backed securities for the month of February, rising to 3.3 percent from 3 percent the month before. Approximately $3.2 billion in multifamily debt was reported delinquent in February, compared to $1.5 billion in the third quarter of 2008.