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Renters Get A Breather

Written by on Wednesday, 31 October 2007 7:00 pm
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Renters who signed contracts in the third quarter may have made out better than those who moved in earlier this year.

The National Multihousing Council's Quarterly Survey's Market Tightness Index slipped to 46 in October, the first sub-50 reading in 17 quarters. Last year at this time, the index was 70.

The council said the slippage was due to apartment demand falling somewhat when compared with demand three months ago. If conditions persist, renters could enjoy slower rising rents, even some negotiating room for better deals.

A Market Tightness Index reading above 50 indicates that, on balance, apartment markets around the country are getting tighter (higher occupancy rates and or higher rents) a reading below 50 indicates that market conditions are getting looser (more vacancies and or lower rents) and a reading of 50 indicates that market conditions are unchanged.

However, even with the quarter-to-quarter demand slip, most (56 percent) of the 90 apartment industry representatives that responded to the survey reported no change in their markets. Eighteen percent saw tighter conditions (higher occupancy rates and/or higher rents), while 25 percent noted looser conditions (lower rates and rents).

The slippage could be due to some renter backlash over rising rents.

The Novato, CA-based RealFacts recently reported third quarter occupancy rates were at or above 90.5 for all the 32 Metropolitan Statistical Areas (MSAs) it tracks, but most MSAs revealed slight occupancy decreases from the second to the third quarter and from year to year.

Rents, however, were up in everyone of the 32 MSAs from the third quarter last year to the same period this year.

The cost of rental housing as been on the rise for more than a year, due in part to owner-occupied housing market turmoil generated by tight mortgage money. That trend is causing more people to switch to rental housing, which has been squeezing the rental supply and pushing up rents.

Asked about the impact of the "subprime mortgage meltdown" on the flow of renters leaving to become homeowners, 22 percent of the respondents said that there has been a big decrease in renters departing (compared with 18 percent in July). Fifty-three percent indicated that there was a small decrease (compared with 37 percent in July), and only 24 percent saw no impact (compared with 46 percent in July).

Rents are likely to continue a general upward trend, if at a slower pace, because the same tight money market that's affecting the owner-occupied market is squeezing the rental supply from the acquisitions and development end.

The survey's Debt Financing Index edged down further in October to 17, from 26 in July. A Debt Financing Index reading below 50 indicates that borrowing conditions are worsening.

Without adequate financing it's tough to acquire new properties and that's why the survey's Sales Volume Index fell to 12, the lowest level in the eight-and-a-half year history of the survey. A Sales Volume Index reading below 50 indicates that sales volume is decreasing. It was the eighth consecutive sub-50 reading, meaning that more markets saw sales volume falling than rising compared with three months earlier.

A reduction in condo conversions accounted for some of the reduced number of acquisitions but "dislocations in the financial markets," was the primary growing factor, the survey said. Eighty percent of those responding to the survey said sales volume was down, compared with only 6 percent who reported higher sales and 13 percent who reported sales unchanged.

The council said additional data suggests that while most markets have seen sales volume decreases, the decrease hasn't been large.

The Equity Financing Index was also down, dropping to 22, the lowest figure on record, again due to the tight financial market. A reading below 50 indicates that equity finance is less available.

More than half (56 percent) of those responding to the survey said equity finance was less available in the third quarter than it was three months ago. Almost a third (31 percent) indicated equity financing was unchanged, while a scant 2 percent saw some improvement in its availability.

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