Apartment Rentals Hit Record Highs in 2010, as More Americans Shun Homeownership
The National Multi Housing Council (NMHC) reported results of its latest Quarterly Survey of Apartment Market Conditions Friday, stating the industry is on the rise, improving in all four indices surveyed and setting an index average record for the second quarter in a row. The results show a shift in consumer mentality toward short-term rental agreements and away from long-term mortgage debt. Currently one-third of Americans rent their housing, and over 14% live in a rental apartment. The NMHC represents the interests of rental property investors, such as Fannie Mae, Freddie Mac, Stewart Title and Starwood, to name a few. The Debt Financing Index, which evaluates borrowing conditions, increased substantially to 81 in Q210 from 58 in Q110. NMHC reported that 64% of respondents said conditions for multifamily borrowing were better than last quarter with 3% saying conditions worsened. This is the second-highest debt financing figure in the history of the survey. The Market Tightness Index, which measures changes in occupancy rates and/or rents, rose to 83 in Q210 from 81 in Q110. Fully 69 percent of respondents said markets were tighter (meaning lower vacancies and/or higher rents). This was the sixth straight quarter in which this measure has risen, and is the highest figure since July 2006. The Sales Volume Index increased to a record high of 78, up from 72, for the second consecutive record setting index. 61% of respondents indicated higher sales volume, an indication of widespread improvement, the survey said. The Equity Financing Index, which evaluates the availability of equity financing, also rose to a record setting 73 in the second quarter, up from the previous record from the first quarter of 71. Nearly half—48%—indicated that equity financing was more available; another record. This is the seventh straight quarter of improvement for this index. NMHC chief economist Mark Obrinsky suggested other economic factors boosted the market for apartments. “Demand for apartment residences has substantially increased thanks to modest improvements in the jobs market and the continuing decline in homeownership rates," he said. However, factors such as the job market and low home mortgage rates are why analysts at Credit Suisse cautioned investors in the apartment market, more specifically apartment real estate investment trusts (REITs). As HousingWire previously reported, Credit Suisse said job growth and the apartment REIT operating performance are historically closely aligned. Recently that trend has changed, but the firm did not conclude whether the change is sustainable. The difference between the two metrics may be an anomaly, but if so, August employment numbers will be a critical factor in predicting the future performance of apartment REITs. If the recent trend is not in fact an anomaly, and the relationship between employment and apartment performance no longer holds, that must be taken into consideration when analyzing apartment operating and share price performance, reported Credit Suisse. Credit Suisse also reported in early July that the current home mortgage rate could divert borrowers from renting. According to a market experiment the firm performed, buying a home is sometimes cheaper than renting. Write to Christine Ricciardi.