Job Losses Cause Apartment Rent Growth to Decline to 0.8%

By Anuradha Kher, Online News EditorDallas–In the third quarter of 2008, the U.S. apartment market had the smallest increase in annual effective rent since the first quarter of 2004, according to AXIOMETRICS INC., a national apartment research company headquartered in Dallas, Texas that has been conducting this survey for 12 years.The 3Q08 annual growth rate in rents of +0.8 percent is the lowest of any quarter since then. The apartment market is expected to worsen into 2009 as the U.S. economy continues to lose more jobs; so far in 2008, the U.S. economy has lost over 760,000 jobs and the unemployment rate has increased from 4.7 percent in September 2007 to 6.1 percent in September 2008.”This is just one more indication that the U.S. economy has continued to weaken during the last several months and that the apartment market is being negatively affected as well, contrary to what some may have initially thought,” Ron Johnsey president AXIOMETRICS, tells MHN. There are two reasons for the falling rent growth numbers. “One is that job growth is the primary driver for rent growth and we have had some big job losses in the last few months and the other is that there is a lot of unsold housing inventory which is causing home prices to fall and rents follow home prices down,” explains Johnsey.Johnsey says that the results for 3Q08 show not only that effective apartment rent growth had substantially slowed from one year ago-with an overall increase of only +.8 percent in effective rent from 3Q07-but also that occupancy rates had dropped by -0.7 percent to 93.5 percent. (All measurements are based upon the same apartment communities in each time period.)“If you are refinancing a property, the decrease in rent growth will result in the cost if financing to go up. The value of a property gets lowered. Multifamily is weakening with vacancy rates rising and job losses mounting. If I were a property owner or manager, I would get people to sign at least one-year leases and lower rents to tide through this tough time,” says Johnsey.The rate of quarterly rent growth in the third quarter of +0.2 percent was the second lowest rate of growth for a third quarter since 1996 and well below the long-term average growth rate for a third quarter of +1.3 percent.Vacancy-rate increases from a year ago. The national vacancy rate increased by +0.7 percent from a year ago to 6.5 percent in 3Q08, which is the highest third quarter vacancy rate since +6.6 percent in 3Q03.The markets with biggest declines in annual effective rent growth compared to a year ago: The markets with improved annual effective rental rate growth compared to a year ago: