Woooo….talk about a great recession, the nation’s homeownership rate has dropped to its lowest in 50 years > estimated at 62.1% …but here’s the rub…Beginning in the 1990s, the pace of rental housing construction fell behind the 350,000 units needed to maintain balance in the market. This situation was exacerbated during the Great Recession, when a mere 100,000 to 170,000 new units were constructed annually. Lots of renters, not enough units.
Now that the economy is coming back, builders are catching up to demand. The new construction boom saw almost 230,000 new multifamily units built in 2012. Of the top 180 metros in the country, 44 doubled the amount of multifamily construction in 2012, according to a study by John Burns Real Estate Consulting.
In Los Angeles, the lack of apartment properties is pushing cap rates down and prices up. Contrasting Dec-2010 with Dec-2012 the median price of sold properties is up 38%, according to Clarus Market Metrics.
Vacancy rates are not an issue these days, as U.S. apartment vacancies declined to an 11-year low, as per Reis Inc. (REIS). The national vacancy rate has dropped to 4.5% from 5.2% a year earlier. Vacancy rates are at their lowest level since 3Q 2001, when the rate was 3.9%. New York was the tightest market, with a 2.1% vacancy rate. The Los Angeles vacancy rate was 4%, as per the L.A. Housing Department.
Foreclosures and the economy has elevated the number of occupied since 2Q 2009, as millions of people forced out of their houses by foreclosure became renters. Additionally, stricter mortgage requirements have made it harder for potential homebuyers to obtain loans.
The multifamily market in Los Angeles may be at its most constrained. The number of for sale properties is down -51% from two years ago. Capital is available to ease purchasing.
One of the big reasons for the growth, according to Lesley Deutch of John Burns Real Estate Consulting, “is that banks are starting to loan again to multifamily. There is a lot of private equity out there because lenders realize how strong the sector is.”
Money is flowing, and eventually our market will ease. Multiunit starts are up 27% from last year, according to the National Association of Home Builders. Despite all the construction, “rents are still going up,” which is a positive signal for lenders, observes Deutch.
Multifamily market demand is expected to remain strong during the next couple of years due to favorable demographics among prime renters and a decreasing national homeownership rate. A Freddie Mac forecast report predicts call for 1.7 million new renter households to come on the market between now and 2015.
While investors are breathing a sigh of relief as the real estate market shows signs of major improvement, the higher rents and low vacancy have made some renters’ searches for affordable apartments more challenging. Potential renters are advised to have plenty of cash at hand, a solid credit history, and a clean background check.
Demographic trends indicate that the preference for apartment renting crosses over multiple generations, from Baby Boomers looking to downsize to Generation Z, the youngest renters in the marketplace. But both groups share the desire for lifestyle convenience when selecting an apartment, including easy access to transportation and safe, walkable neighborhoods.
We’re here to help you with your commercial and investment property needs. Please contact Jodi Summers and the SoCal Investment Real Estate Group @ Sotheby’s International Realty – email@example.com or 310.392.1211, and let us move forward together.
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