After nearly a year of slow but steady growth, a large segment of the national rental market has yielded an unexpected drop in occupancy rates and experts aren't quite sure why.

If it continues, for whatever reason, some renters may have some incentives or concessions to crow about a bit longer than expected.

Historically, declines in occupancy often precede declines in rent, but rents continued to grow by 0.6 percent from the third to the fourth quarter of 2005, RealFacts reported.

The fourth quarter 0.5 percent occupancy rate decline was the first significant decline in eight quarters, since the first quarter of 2004, when the national economy was first showing signs of improvement.

"It (the occupancy rate decline) was unusual. It was across the board. We had a 0.2 percent decrease a couple of quarters ago, but (statistically) that was zero. This (the 0.5 percent decline), I think, is statistically significant," said Chris Bates, sales and marketing director at RealFacts.

Even areas monitored by RealFacts that were affected by hurricane-forced emigration showed only slight occupancy improvements or declines during the third quarter. The Houston-Baytown-Sugarland metropolitan statistical area (MSA), for example, yielded a 0.1 percent quarter-to-quarter occupancy boost after enjoying a nearly 4 percent increase all year. The occupancy level in Houston stood at 93.1 percent by years end.

All other Texas regions monitored by RealFacts showed occupancy declines in the fourth quarter -- Austin by a full 1 percent; Dallas by 0.9 percent; and San Antonio by 0.1 percent.

In addition to Houston, only the areas in and around Portland, OR; Reno, NV; San Jose (Silicon Valley) and Vallejo CA and Tucson, AZ; showed occupancy level improvements in the fourth quarter 2005. No area improved quarterly occupancy levels by more than 0.6 percent, which Vallejo yielded.

"Seasonally third quarter occupancy usually goes up so it is not unheard of for the fourth quarter to decrease. But we thought this decline was notable. We don't have one answer why. It could be different depending on where you go. In San Diego county (where the occupancy rate has been falling all year) there are condo conversions. In other markets people are still buying homes. I don't think there is one simple answer," said Bates.

Condo conversions, newly constructed rental apartments, and home buying all impact the supply of rental housing and occupancy rates.

"There is the possible structural change in the rental market as the boom in single-family home purchases has an impact on rental apartment occupancy rates," RealFacts reported.

As occupancy levels fell and left more questions than answers, rents continued to improve.

Quarter-to-quarter rent declines were few and evident only in Colorado Springs, CO; Dallas, TX; St. Louis, MO; Tucson, AZ; and Tulsa, OK. Indianapolis, IN rents remained unchanged.

Year-to-year rent increases were at 5 percent or more in Phoenix, AZ; Los Angeles, CA and Las Vegas, NV with the Riverside, CA market soaring by 7.3 percent.

Riverside also yielded the greatest quarterly jump in rents, 2.4 percent, followed by a quarterly rent increase of 2.3 percent in Phoenix, AZ; 1.9 percent in Reno, NV; 1.5 in Vallejo, CA and 1.4 percent in San Francisco, CA and Las Vegas, NV.

Bates said the next quarter's results should give more indication whether a trend of falling occupancy levels is developing -- or not.

Published: January 19, 2006

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.