Wednesday, December 4, 2013

Analysis: Single-family and condo rental vacancies remain rare

Vacancies in single-family, townhome, and condo rentals were up in the 3rd quarter of 2013, rising to 2.9 percent from the second quarter's rate of 2.2 percent. The vacancy rate during the third quarter of 2012 was 2.3 percent. However, movements in the vacancy rate below 3 percent don't tell us a whole lot. Any vacancy rate below 3 percent points to a pretty tight market, whether it's 2.2 percent or 2.9 percent. We can see in the first graph that the general trend in all types of properties are generally down from where they were in 2010.

Not surprisingly, the ongoing lack of vacancies in this unit has led to a general increase in the average rent since 2011. In the second graph, we see that the general upward trend in average rents extends to houses, townhomes, and condos. Single-family houses report the highest average rent, and condos report the lowest average rent. 

Specifically, the average rents were:
Single-family houses: $1,378
Townhouses: $1,217
Condos: $822

All three types of properties reported higher average rents, year over year. 

In the third graph, we see the year-over-year change for the various property types for each quarter. For the past four quarters, all property types have reported gains year over year, and this points to general strength in the demand for these properties that has been sustained over time. Even condos, which have tended to experience the weakest demand, have turned positive. We can also note that in many cases, the year over year growth rate in rents has been above five percent, which suggests that rents have been rising at a rate exceeding the official inflation rate.

The effect of price inflation should of course not be ignored. The final graph shows the average rent in single-family houses, condos, and townhouses in the metro Denver area. We see that the average rent has not yet returned to where it was in real terms in 2001 and 2002. Real losses occurred during 2004 through 2006. Recent growth has exceeded the inflation rate, however, and we find real increases in the average rent over the past 18 months or so. The inflation adjusted average rent during the third quarter of 2013 was $877, which puts it back at about 2004 rates.