Rental Vacancies: One More Pressure on Home Prices

|
 |  Includes: AVB, EQR, ESS, PPS, UDR
by: John Lounsbury

Housing rents have plunged to a 30 year low, according to Reiss & Co (a real estate market research company) as reported by Ilaina Jonas at Reuters. Apartment vacancies rose to 8% in the fourth quarter, also a 30-year high.
The Reiss data is collected in metropolitan areas.

The Reuters headline is about rentals, but the reader should connect the dots. Since home sales are always competing against the cost of renting, this is creating another negative force (in addition to a high foreclosure rate) on home prices.

Victor Calanog, Director of Research for Reiss, was quoted in the Reuters article as predicting some relief for apartment landlords may come later in 2010 as new construction of apartments is now slowing and employment should start to improve as the economy enters recovery. Calanog said that, if improvement is not seen by mid-year (in the apartment rent and vacancy situations), 2010 would be another tough year for landlords. If it is a tough year for landlords, it will also be a tough year for home sales.

A quote from the Reuters article:

Even large apartment landlords such as Equity Residential (NYSE:EQR), AvalonBay Communities Inc (NYSE:AVB), Essex Property Trust Inc (NYSE:ESS), UDR Inc (NYSE:UDR) and Post Properties Inc (NYSE:PPS) have reduced rents and offered perks to retain and attract tenants.

Finally, just as higher priced home sales have been slower than the lowest priced homes in 2009, the landlord pain is the highest in the more expensive rentals. It remains to be seen if this is temporary or the "New Normal".

Hat tip to Calculated Risk for the following graphic:

The rental vacancy rates nationally graphed above are actually higher than the Reiss metropolitan data and are available from the U.S. Census Bureau. The potential impact on home sales of this vacancy rate was estimated by Calculated Risk to be about 1.25 million homes. This is more than 20% of the current annual homes sales number.

Disclosure: No positions in stocks mentioned.