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Apartment Boom May Be Slowing Down, Finds Reis in Study

by Reno Manuele

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The apartment boom and multifamily development demand was among the bright spots in post-boom housing, but a new report from Reis suggests that may be over.

By Peter Ricci

The multifamily sector of the housing market has been one of the few bright spots in the post-boom marketplace, and how – new data from the Mortgage Bankers Association earlier today found that more than 2,500 lenders provided $110.1 billion in new mortgages for apartment buildings in 2011, a 60 percent increase from 2010 and full doubling of 2010’s totals.

However, that was in 2011, when the single-family housing market was still reeling; now, with the news for homeownership looking better with each passing week, there is new evidence from Reis Inc., a real estate data firm, that the apartment boom may be tapering off heading into 2013.

Is The Apartment Boom Beginning to Subside?

For its study of the multifamily housing market and the apartment boom, Reis looked at the absorption rates for rental units in the third quarter:

  • Renters absorbed 22,615 apartments in the third quarter, a 27 percent decline from the second quarter and a 38 percent fall from the first quarter.
  • Furthermore, Reis noted that the rental vacancy rate fell just 10 basis points in the third quarter, after falling an average of 35 basis points in all of 2010 and 2011.
  • Reis was careful to point out that demand for rental units is still exceeding supply, and rental growth should be around 3 percent in the next few years; however, the free-wheeling apartment boom that began a year ago may be subsiding.
  • “Has sluggish economic growth finally bogged down the rapid improvement of fundamentals for apartment properties across the nation?” Reis asked in the study.

Mortgage Rates and Single-Family Housing Demand

In an article on Reis’ reported, the Wall Street Journal noted that some landlords and multifamily housing investors have been a bit skittish in recent weeks with home sales improving like they have – after all, it takes roughly a year to complete a multifamily development, and if potential renters buy homes, it’s unlikely they’ll be renting a year from now. Also, the single-family market does have an ace in the hole to stoke demand – insanely low interest rates.

According to the latest survey by Freddie Mac, the 30-year FRM averaged 3.36 percent last week, and the 15-year averaged just 2.69 percent, which, remarkably, is an even lower rate than that of the 5-year ARM.

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