Back in July, I wrote about the decline in rent prices. At that time the vacancy rate had hit a 22-year high. Bloomberg reports that in the third quarter it hit a 23-year high, rising to 7.8%, according to commercial real estate analyst Reis Inc. As I mentioned before, this might be a little surprising if you think that all of those troubled homeowners who face foreclosure will be forced to rent instead. But foreclosures do not appear to be propping up the rental market.
Vacancies were 7.7% in the second quarter, so the third quarter vacancies only increased a modest 0.1%. But that rise is more significant when you think about seasonality. The third quarter is generally boom time for the rental market.
According to Bloomberg, unemployment has reduced rental demand. Obviously, unemployment doesn't result in buying a home instead, so where are these individuals going instead of renting? Since the news of tent villages popping up is sparse, I'd offer two other theories: more people must be getting roommates or moving in with relatives.
As you might guess, even poorer demand means even lower prices:
Actual rents paid by tenants, known as effective rents, declined 2.7 percent from a year earlier, the New York-based property research firm said in a report today. Asking rents, or what landlords sought, fell 1.8 percent from a year earlier.
It's a renter's market, as these statistics show that renters have the ability to talk down landlords from their asking rent. Of course, this price decline varies by location. According to the article, Manhattan rents have fallen nearly 9% in the third quarter compared to the prior year.
When will vacancies decline and prices go back up? Not this year. In fact, they will likely get worse:
Vacancies "continued to rise despite what has traditionally been a strong leasing period for apartment properties," Victor Calanog, director of research at Reis, said in a statement. "Given the inherent seasonality of rental and lease-up patterns we expect fourth-quarter figures to be even weaker, implying that we may break historic vacancy levels by year-end 2009."