Apartment performance turned the corner dur-ing the second quarter, as modest private-sector job growth and stronger household formationreleased some of the pent-up renter demandaccumulated through the downturn. Improve-ments were broad-based, with 70 percent of allmajor U.S. apartment markets recording occu-pancy gains. As 2010 progresses, more pent-updemand for apartments will be released, partic-ularly among the estimated 2.2 million youngadults who have moved back with their parentssince 2005. The outlook brightens consider-ably for 2011 and beyond amid expectations forimproved economic growth, powerful demo-graphic shifts supporting a surge in renter demand and limited new construction. These trendswill likely result in a shortage of apartments nationwide, driving rent growth to above-averagelevels by 2012 or 2013.
Surging Apartment Absorption Presses Vacancies Lower.
After stabilizing earlier this year,apartment vacancy slipped 20 basis points to 7.8 percent during the second quarter. Approxi-mately 46,000 apartments were absorbed, the strongest demand since late 2000. The surge re
ectsthe release of pent-up demand amid moderate private-sector job creation, as more young indi-viduals moved out of their family homes and renters who doubled up through the downturnre-established independent households. During the
rst six months of the year, 10 metro areasaccounted for 55 percent of the absorption recorded nationwide; combined, these markets added212,000 jobs, equivalent to approximately one-quarter of all positions created in the United Statesduring that time.
Former Homeowners Transition into Rental Market
. Foreclosure-related increases to renter de-mand continue. At the same time, tight lending and high downpayment requirements precludemany renters from purchasing homes; as of mid-2010, just 8 percent of residential mortgagesoriginated allowed for downpayments of less than 10 percent, compared to 29 percent in 2007.The homeownership rate has dropped considerably in recent years as a result of these trends.Even during the
rst half, when the homebuyer tax credit remained in effect, the homeowner-ship rate slipped 40 basis points to 66.9 percent, the lowest level reported since 1999. Over thepast year, owner-occupied housing declined by 42,000 units, while renter-occupied housing in-creased. A large share of new renter demand was satis
ed by available shadow stock, however,as foreclosed families often gravitate toward single-family rentals over apartments.
Apartment Construction Limited.
Developers delivered 29,200 apartments in the second quar-ter, up slightly from the previous quarter but down 18 percent from the same period in 2009.Many of the projects completed through the
rst half were started ahead of the downturn inrenter demand, with a more dramatic slowdown in deliveries anticipated later this year; fewerthan 30,000 units will come online during the second half.
Apartments First Commercial Investment to Show Signs of Recovery;Demographic and Economic Trends Favor Positive Outlook
For more information, contact John Chang, Vice President, Research Services, at john.chang@marcusmillichap.com. © Marcus & Millichap 2010
* ForecastSources: Marcus & Millichap Research Services, U.S. Census Bureau
H o u s i n g U n i t s C o m p l e t e d / N e w H o u s e h o l d s ( m i l l i o n s )
MultifamilyNumber of Households
Housing Completions vs.Household Formation
Single-Family
00.51.01.52.0
10*080604020098969492908886848280
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