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 eighteen. Mr. Vollucci states, “This quarter the three top buy recommendations are Allentown, PA, Camden, NJ and Duluth, WI. The three top sell recommendations are Colorado Springs, CO, Sacramento, CA and Spokane, WA.”
In this edition of our Market Cycles, we find that the National vacancy rates in the second quarter 2018 were 6.8 percent for rental housing and 1.5 percent for homeowner housing. The rental vacancy rate of 6.8 percent was 0.5 percentage points lower than the rate in the second quarter 2017 (7.3 percent) and not statistically different from the rate in the first quarter 2018 (7.0 percent). The homeowner vacancy rate of 1.5 percent was virtually unchanged from the rate in the second quarter 2017 and the rate in the first quarter 2018 (1.5 percent each).
The second quarter 2018 rental vacancy rate was highest outside Metropolitan Statistical Areas (9.2 percent). The rates in principal cities (6.8 percent) and in the suburbs (6.2 percent) were not statistically different from each other. The rental vacancy rate in the suburbs was lower than the second quarter 2017 rate, while rates in principal cities and outside MSAs were not statistically different from the second quarter 2017 rates
The unemployment rate declined by 0.2 percentage point to 3.7 percent in September, and the number of unemployed persons decreased by 270,000 to 6.0 million. Over the year, the unemployment rate and the number of unemployed persons declined by 0.5 percentage point and 795,000, respectively.
Among the major worker groups, the unemployment rates for adult women (3.3 percent) and Whites (3.3 percent) declined in September. The jobless rates for adult men (3.4 percent), teenagers (12.8 percent), Blacks (6.0 percent), Asians (3.5 percent), and Hispanics (4.5 percent) showed little or no change over the month.
The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.4 million over the month; these individuals accounted for 22.9 percent of the unemployed.) In September, the labor force participation rate remained at 62.7 percent, and the employment population ratio, at 60.4 percent, was little changed.
Rents, based on the Apartment List report, increased by 1.5 percent from February through July, and leveled off in August and have now begun to fall. The summer months are generally when rental activity is at its busiest, and while rents increased at a fast clip in May and June, things have since cooled off considerably. Rent growth tends to follow a seasonal trend, but the slowdown this year started earlier than usual and month-over-month rent growth has now turned negative for the first time since January. This months data serves as further evidence of softness in the market, as rent growth over the past year remains sluggish compared to the previous two years.
Year-over-year growth currently stands at 0.9 percent at the national level, which is well below the 2.9 percent rate we saw this time last year as well as the 2.6 percent rate from September 2016. Rent growth is also pacing well behind the overall rate of inflation, which stands at 2.7 percent as of the latest data release, and is similarly lagging growth in average hourly earnings, which have increased by 2.9 percent over the past twelve months. With the homeownership rate continuing to trend upward and more new supply slated to come online throughout the year in many markets, its possible that rent growth will continue to be sluggish, a welcome bit of relief as millions of our nations renters continue to struggle with housing affordability.
.Absorption according to U.S. Department of Commerce US Census Bureau: Within the first 3 months after completion, 56 percent of seasonally adjusted, newly completed, unfurnished rental apartments built in the first quarter of 2018 were rented. The 56 percent seasonally adjusted rate in the first quarter of 2018 did not differ significantly from the revised seasonally adjusted figure of 54 percent reported in the previous quarter, nor the 55 percent in the first quarter of 2017
Absorption (not seasonally adjusted): Within the first 3 months after completion, 55 percent of the not seasonally adjusted, newly completed, unfurnished rental apartments built in the first quarter of 2018 were rented. This figure is 6 percentage points higher than the revised not seasonally adjusted rate of 49 percent for units completed during the fourth quarter of 2017. However, the 3-month absorption rate for units completed in the first quarter of 2018 did not differ significantly from 54 percent 3-month absorption rate in first after a three-month period there were a higher.
Steady job creation, above-trend household formation and elevated single-family home prices have converged to counterbalance the addition of 1.37 million apartments over the last five years, at least on a macro level, easing concerns of overdevelopment. In the coming year, rising development costs, tighter construction financing and mounting caution levels will curb the pace of new additions from the 380,000 units delivered in 2017 to approximately 335,000 apartments. Although the pace of completions will moderate in 2018, additions will still likely outpace absorption, as reported by Marcus & Millichap.
In addition, they reported that, nationally, Class A vacancy rates have advanced to 6.3 percent in 2017 and will continue their climb to the 6.8 percent range over the next year. Vacancy rates for Class B and C assets will rise less significantly in 2018, pushing to 5.0 percent and 4.7 percent, respectively. Average rent growth will taper to 3.1 percent in 2018 as concessions become more prevalent, particularly in Class A properties.
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