According to a recent report from Capital Economics, the slowdown in home sales is feeding the demand for rentals.
“Alongside solid earnings growth that helped drive the CPI measure of annual rental growth to a two year high of 3.9% in June,” the report said. “Strong rental growth, and falling risk-free interest rates, should support investor demand as the economy slows.”
The amount of rental households nationwide rose to 600,000 in the second quarter of 2019, according to the Census Bureau, and accounted for the largest gain in three years. Even with the increase, rental vacancies have stayed low, Capital Economics reports.
“In the second quarter, Reis reported an unchanged apartment vacancy rate of 4.7%, and the Census Bureau reported that the multifamily rental vacancy rate had dropped to 7.9%,” the report said. “Multifamily rental vacancy rates are most below their long run average in the West, and only eight states had above average vacancy in the second quarter.”
Zillow was cited as reporting an uptick in multifamily rental growth, with an annual rise of 3.4% in June, compared with single family housing’s 3% gain. Iowa, Delaware and Maine were the only three states to see a year-over-year fall in rents in June.
And while vacancies are low and rental demand is still high, the report implies that multifamily developers may be slowing down.
“Multifamily building permits dropped to 409,000 annualised in June, a three-year low, which implies starts in July will fall for the second consecutive month,” the report said.