The U.S. apartment sector continued to rebound in the fourth quarter as the national vacancy rate fell to its lowest level in more than two years and rents rose 0.5 percent, according to a report issued Thursday.
The apartment sector is among the first to react to economic changes, and improvements in this area of the housing market signal that some would-be renters were becoming more optimistic about their future employment possibilities, said Ryan Severino, economist with Reis Inc, which issued the report.
"Their perception about their future prospects have clearly changed based on what went on the last three or four quarters," he said.
The apartment sector bottomed in the fourth quarter of 2009 and has improved ever since, Severino said.
"It's a pretty good sign that things are heating up," he said.
The national vacancy rate fell to 6.6 percent in the fourth quarter, down 0.5 percentage points from the third quarter and was the lowest national vacancy rate since the third quarter of 2008, according Reis's preliminary quarterly results.
During the quarter, 58,000 more apartments were occupied than were vacant. That's the largest amount in 10 years for a typical sleepy fourth quarter, Reis said.
The tighter supply helped push up monthly asking rents up 0.5 percent to $1,042. Including months of free rent and other perks, effective rent also rose 0.5 percent to a monthly $986.
The results should benefit U.S. apartment owners, such as Essex Property Trust, AvalonBay Communities Inc and Equity Residential.
In New York, the vacancy rate dropped 0.4 of a percentage point to 3.2 percent, while effective rent rose 0.9 percent to $2,782 a month. In Washington, D.C., another tight market, the vacancy rate fell 0.2 of a percentage point to 5.5 percent. Rent rose 1.2 percent to $1,397.
During the boom years of 2006 and 2007, many apartment building buyers underwrote their investments with expectations that rents in their fully occupied buildings would continue to rise. But the downturn came in late 2007.
Although effective rent rose 2.3 percent in 2010, it has been too little, too late. "That's not going to bail those deals out," Severino said.
Securitized loans on apartment buildings remained the worst performing in December, compared with other type of real estate, according to Trepp, which tracks commercial mortgage-backed securities (CMBS).
The delinquency rate on mortgages that support CMBS hit 16.48 percent in December, compared with the overall rate of 9.2 percent, Trepp said.
