In a sign that the nation's foreclosure crisis is taking a toll, renters surged into the U.S. apartment market in the third quarter, pushing up rents and driving down vacancies.
The national vacancy rate fell to 7.2% in the third quarter from 7.8% the second quarter, one of the sharpest drops on record, according to New York-based real estate research firm Reis Inc. Rents increased 0.6% to an average of $980 a unit over the same period as landlords were able to cut back on free rent and other incentives that had been used to attract and retain tenants in a weak market.
Economists said they expected the trend to continue. Former homeowners who lost their properties to foreclosure are now pouring into the rental market. Meanwhile, tightened credit standards are making it tougher for potential buyers to qualify for a home loan, despite low interest rates.
The U.S. homeownership rate has declined swiftly. In the second quarter of this year, 66.9% of housing units were owner-occupied. That's down from 69% in 2004 when millions of first-time buyers armed with easy credit flooded into the housing market.
"We are seeing a shift away from owning a home to renting," Patrick Newport, U.S. economist for consultancy IHS Global Insight. "As it became easier and easier to get credit to buy a home … the homeownership rate just shot up … . Now it is reverting to where it was."
Rental demand is picking up after the recession forced many people to double up with friends and relatives.
The report said that the worst may be over for the nation's landlords.
"We now have three quarters' worth of data showing that the apartment sector bottomed in the fourth quarter of 2009, with a strong recovery underway," the report said.
In Los Angeles County, the vacancy rate fell 0.3%, to 5.2%, and rents remained relatively flat, up 0.1%, to $1,343 a unit. While that's encouraging news for landlords, L.A. looks to be a renters market for some time to come, said Richard Green, director of the USC Lusk Center for Real Estate.
"[Rents] have flattened, but they have come down a long way, and until they start rising pretty rapidly we are not going to get back to peak any time soon," Green said. "The good news is that because rents came down so much, and they haven't really gone up very much, at least rental housing is more affordable [considering that] we have among the least affordable rental markets in the country."
In Orange County, the vacancy rate decreased 0.5%, to 5.9%, and rents increased 0.5%, to $1,455 a unit. In San Diego County, the vacancy was down 0.4%, to 4.5%, and rents increased 0.3% to $1,289.
In the Inland Empire, the vacancy rate fell 0.7%, to 7.1%, and rents were flat, up 0.1%, to $990.
Mia Melle, a broker for the website Renttoday.us, which is based in Ontario and whose main market is the Inland Empire, said she was still helping a lot of people who had lost their homes and were now looking at rental options.
"We are getting a lot of those people," Melle said. "I think we have also been seeing more downsizing: people coming looking for less rent. Maybe they were renting something for $2,700 and they are looking to lower their overhead and go to $1,600."
Investors see opportunity in rental housing. The government recently reported that construction of newly built homes jumped a surprising 10.5% in August from July, driven largely by construction of apartment buildings and condominiums.