Will the Rental Market Cool Down?

August 31, 2012

The latest housing reports are showing housing on the mend and many are reaching the conclusion that the worst is over. So what does this mean for the booming rental market? 

The pick up in home sales has many analysts questioning how much longer the multifamily sector will see this kind of rapid growth. 

Apartment rents are soaring in many markets and vacancies are falling. Also, multifamily housing starts climbed 30 percent in July over year-ago levels. 

“The apartments have had spectacular growth since the depths of the recession, and at a certain point that growth has to moderate,” David Toti, a mulifamily analyst, told CNBC. “You can only raise rents so much before you force people out.”

The increase in supply within the multifamily sector and high prices may make investors more leery. While apartment rents are still rising, they have shown signs of leveling off. 

Still, “modestly favorable home-buying indicators are not coming at the expense of apartment rent trends,” writes Sam Chandan of Chandan Economics. “Multifamily fundamentals continue to improve in advance of pending inventory additions from the construction pipeline.” 

A strong housing market can co-exist with a strong multifamily sector — at least for “a little while,” Toti adds. 

Source: “As Housing Recovers, Apartment Boom May End,” CNBC (Aug. 29, 2012)