Americans are paying more to live in apartments as the demand for housing increases and many potential buyers are forced to rent because house prices have become too high.
It’s a godsend for owners of large apartment communities more than a year after the economy slipped into a recession that left millions of Americans unemployed and struggling to pay their rent. Zillow, which tracks housing data, says its rent index rose 7.1% in June, the largest year-over-year increase in 2015.
The government’s efforts to support Americans financially affected by COVID, including relief payments, have almost certainly helped tenants pay their rent. At least one measure of rent collection shows fewer tenants are failing to keep up with payments than just a few months ago. And while vacant apartments have not returned to pre-pandemic levels, they are basically in line with the 10-year average.
The increase in apartment rents represents a change from the beginning of the year, when they were not rising and the vacancy rate continued to rise. That changed in the spring when pandemic restrictions were relaxed following an accelerated distribution of coronavirus vaccines. Since then, improvements in the economy and the labor market have helped fuel demand for rental housing.
“The tide has really turned a lot for (apartment) rentals because of these factors,” said Victor Calanog, chief economist at Moody’s Analytics REIS.
The national average effective rent, a key industry metric, rose 0.6% in the second quarter, according to data from Moody’s Analytics REIS, which tracks landlords in communities with at least 50 apartments. The April-June increase ended a series of four consecutive quarterly declines, bringing the average effective rent in the United States to $ 1,394.79. It was also the largest since the third quarter of 2019. Effective rent is what is left over after removing concessions sometimes offered by landlords to court tenants.
Zillow figures, which track a wide range of rental properties, including those owned by individual investors, show typical rents hit $ 1,799 in June.
Freddie Mac forecasts apartment rents in the United States to rise 2.5% this year, while the vacancy rate slips to 5%. The forecast is based on the assumption that the economy will continue to grow for the remainder of the year until 2022.
With demand picking up, landlords are feeling less pressure to offer tenants incentives such as a free month’s rent, Calaog said.
“You could have gotten it six months ago, but no more,” he said.
Another sign of improving trends for apartment owners is that fewer tenants are not paying their rent than a few months ago, according to data from the National Multifamily Housing Council, an apartment industry group.
The data, which is taken from rent payments on more than 11 million apartments, shows that the percentage of apartments with rent paid at the end of the month rose to 95.6% in June after lowering prices. two previous months. In June of last year, the rent collection rate was 95.9%, then gradually declined until it hit a pandemic low of 93.2% in January.
One measure that has not improved is the national apartment vacancy rate. It has remained at 5.3% this year, according to Moody’s Analytics REIS. In 2020, it fell from 4.8% in the first quarter to 5.2% in the fourth quarter.
Efforts by federal, state and local authorities to help tenants who would otherwise be evicted for defaulting on rent have likely helped keep vacancy rates from climbing higher.
A federal moratorium on evictions expired at the end of July, paving the way for mass evictions at a time when an ultra-contagious mutation of the COVID-19 virus is spreading in the United States. But on Tuesday night, the Centers for Disease Control and Prevention issued a new ban on evictions until Oct. 3 in counties with high levels of coronavirus transmission.
“You cannot rule out the very real possibility that the vacancies have been stable due to the moratoriums on evictions,” Calanog said. “Is this the wrong kind of stable?” “
Recent earnings reports from several real estate investment trusts, or REITs, that own apartment communities reflect strong trends in rental market demand.
Mid-America Apartment Communities, which owns more than 100,000 apartments in 16 states, increased its profit outlook for the year after posting better-than-expected results last week, in large part on strong demand. The company said new rents and renewal of leases in apartments in communities open for at least one year jumped 12% last month from a year earlier.
Three of the other biggest apartment REITs – AvalonBay, Equity Residential and UDR – also recently released quarterly results that beat Wall Street expectations.
In a research note last week, analysts at Mizuho Securities said the apartment industry remains a “must”. Mizuho has “Buy” ratings on AvalonBay and UDR.
Suggest a correction