Just Released Third Quarter 2015 Leading Rental Income Markets

SAN FRANCISCO - Oct. 10, 2015 - PRLog -- The current number of markets in the “Sell Phase” is thirty-nine, according to Eugene E. Vollucci, Director of CRES.  The number of markets in the “Buy Phase” is ten. Mr. Vollucci states, “This quarter the three top buy recommendations are Chicago, IL, Lake County, IL and Phoenix, AZ. The three top sell recommendations are Beaumont, TX,  Charleston, SC and Tampa , FL. While rental income property rents are rising at a noteworthy pace all across the county, the nation’s average price increase is erratic caused by the bump in rents in the Western region. Further more, rent growth is increasing more quickly in the West than in other regions of the country.”

National vacancy rates in the second quarter of 2015 were 6.8 percent for rental housing and 1.8 percent for homeowner housing, the Department of Commerce’s Census Bureau announced today. The rental vacancy rate of 6.8 percent was lower than the rate in the second quarter 2014 and 0.3 percent lower than the rate last quarter. The homeowner vacancy rate of 1.8 percent was 0.1 percent  lower than the rate in the second quarter 2014  and the rate last quarter.

As supply trailed demand, vacancy plunged across the U.S. The rate receded to 5% in 2014, the lowest since 2000. The vacancy improvement coincided with the positive net absorption of 380,900 units, outpacing supply by 141,200 rental income properties. Vacancy in all metros  recorded improvements. The uptick in completions will slow but not stop vacancy decreases.

 According to MPF Research, sizable rent growth in U.S. rental income markets reflects higher occupancy. The occupancy figure as of the third quarter was 96.1 percent, up slightly from 95.8 percent a year earlier. Demand for rental income properties across the nation’s 100 largest markets came in at 85,689 units during the third quarter, surpassing concurrent deliveries that totaled 69,299 units. Demand in the 12 months ending in September registered at 260,430 units, ahead of the 236,606 new units completed. Properties under construction in the 100 largest metros at the end of the third quarter totaled 436,407 units. That construction volume is on par with the average for the past 10 quarters, reflecting no meaningful change in building activity.

The Bureau of Labor Statistics (BLS) reported that payroll employment expanded by 142 thousand in September, well below expectations. Revisions to the previous two months subtracted 59 thousand jobs. The household survey showed a decline in the labor force of 350 thousand, 236 thousand fewer persons employed, resulting in no change in the unemployment rate at 5.1%, and a decline in the labor force participation rate to 62.4%.

“While new supply tends to slow rent growth historically, that has not been the case as of late. Construction of luxury units in the most desirable neighborhoods results in new product rents that are too high to pull many residents out of the existing stock. Nationally, the typical monthly rent for new communities is around $1,600, more than 15 percent above typical rents in the best properties built prior to 2010.  U.S. rental income properties will remain essentially full through 2016. While overall occupancy should inch down very slightly, that slight shift really just reflects the volume of product moving through initial lease-up, rather than any real softening in the performances of most individual existing communities”, said economist Mr. Willetts.

MPF Research reports annual rents will likely continue to rise, but at a slower pace than is seen now. Rent growth for new leases to remain above 4 percent through the end of 2016. Whether or not the western region metros can sustain their torrid price increases is the key question. While underlying fundamentals are very strong in the West, if the economy experiences an unforeseen stumble, there is perhaps greater risk of a price correction there.

Many markets are continuing to perform well; however, there are signs in some markets of slowing growth. Most markets have been performing pretty well over the last several quarters during this relatively healthy rental income market.