Fall 2012 issue of Horizons

expected that 2012 will bring some of the all-time lowest vacancy rates, while rental growth is anticipated to be anywhere from 3 and 7 percent.

Much of this may be attributed to the fact that while more individuals are looking to rent, they are also looking to share the costs by living with roommates and family members. Likewise, analysts insist that oversupply is not a concern in the near term, but could become more apparent in some geographic markets by 2013. With the sluggish job growth, tightened credit conditions and increased occupancy rates, apartment owners are finding themselves with the pricing edge and overall ability to strike while the iron is hot on rent increases. In fact, some owners have even welcomed move-outs to allow them to be released from old lease terms and to begin anew with higher monthly rents going into 2012. But, in the meantime, apartment owners can expect to keep occupancy high and cash flow strong in 2012 given the market conditions. Further, owners have been enhancing property values and curb appeal via substantial apartment upgrades and repairs, which had been delayed in prior years due to weakened economic performance.

One major source of this forecasted improvement relates to overall renter demographics. Generation Y (those

individuals born between 1982 and 1995) have shown a strong propensity to rent given the current wage and mortgage lending situations. Moreover, the multifamily rental market- related student and campus housing, as well as market rate rentals, is expected to be very healthy in the coming years. However, a word of caution as with all real estate trends—these Generation Y individuals will eventually cycle out as the lending industry and compensation levels improve. Similarly, the continued decline in the homeownership rate has added to the growing renter population. The 2011 homeownership rate again dropped roughly 1 percent from 2010 levels, which were down over 2 percent from 2009 levels. Those hit hardest by this rate decrease were minorities, who alone experienced a 1 percent decrease in homeownership on average, according to the Department of Housing and Urban Development. Yet, as the market shifts to improve home values and, in turn, homeownership becomes more desirable, multifamily housing’s growth will once again start to slow. In response to this increased rental demand, multifamily housing permits, starts and completions have risen significantly in 2011 as well as into the first quarter of 2012. Indeed, permits alone in late 2011/early 2012 have shown a 61 percent surge over late 2010/ early 2011. Yet, it is important to note that the absorption for the new apartment units has slowed approximately 64% from late 2010 to late 2011, which seems contradictory to demand and the increased renter pool.

Market Trends 2011 saw a lending arena that had

improved compared to a few years ago. Indeed, banks have been focusing on the apartment market once again. The decline in vacancy rates, coupled with increased

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