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Just Released 2nd Quarter 2019

Leading Rental Income Markets

          LOS ANGELES, CA. The Center for Real Estate Studies (CRES) research report has just released their second quarter 2019 issue of “Market Cycles".  It gives a forward look at more than 150 income rental markets with “buy, sell or hold” recommendations. This publication gives the real estate investor a two-year head start on where and when to invest in rental income properties.

          The current number of markets in the “Sell Phase” is fifty-one, according to Eugene E. Vollucci, Director of CRES.  The number of markets in the “Buy Phase” is fourteen. Mr. Vollucci states, “This quarter the three top buy recommendations are Lancaster, PA, Bridgeport, CT and Springfield, MA. The three top sell recommendations are Fresno, CA, Orlando, FL and Phoenix, AZ.” according to Mr. Vollucci.

          In this edition of our Market Cycles, we find the National vacancy rates in the first quarter 2019 were 7.0 percent for rental housing and 1.4 percent for homeowner housing. The rental vacancy rate of 7.0 percent was virtually unchanged from the rate in the first quarter 2018, but 0.4 percentage points higher than the rate in the fourth quarter 2018. The homeowner vacancy rate of 1.4 percent was 0.1 percentage point lower than the rate in the first quarter 2018, but not statistically different from the rate in the fourth quarter 2018. The homeownership rate of 64.2 percent was virtually unchanged from the rate in the first quarter 2018, but 0.6 percentage points lower than the rate in the fourth quarter 2018.

          The first quarter 2019 rental vacancy rate was highest outside Metropolitan Statistical Areas and lowest in the suburbs. The rental vacancy rate outside MSAs was higher than the first quarter 2018 rate, while rates in principal cities and in the suburbs were not statistically different from the first quarter 2018 rates. The homeowner vacancy rates outside MSAs were higher than the rate in the suburbs.  Occupancy was 96.0% in May, the highest rate since 2001. Among the nation’s 50 largest local apartment markets, only one – Milwaukee – lost ground in occupancy month-over-month. The other 49 large markets gained occupancy from April to May 2019.

            Unemployment rates were lower in May in 6 states, higher in 2 states, and  stable in 42 states and the District of Columbia, the U.S. Bureau

Of Labor Statistics reported today. Five states had jobless rate

decreases from a year earlier, 1 state had an increase, and 44 states

and  DC had little or no change. The national unemployment

rate remained at 3.6 percent in May and was little changed from May

2018. Nonfarm payroll employment increased in Washington in May 2019 and was essentially unchanged in 49 states and the District of Columbia. Over the year, 24 states added nonfarm payroll jobs and 26 states and 

DC was essentially unchanged.

          US Median Asking Rent is at a current level of $1,006.00, an increase of $59.00 or 6.23% from last quarter. This is an increase of $52.00 or 5.45% from last year and is higher than the long-term average of $589.79.  The average annual rent growth among the nation’s apartments held solid at 3.1% in May, landing well above May 2018’s level of 2.6%. May marks the 10th consecutive month of annual rent growth at 3% or higher. Rents averaged $1,394 across the 150 largest local apartment markets

         

          As reported by Marcus & Millichap in their 2019 National Apartment Outlook, the new tax law is having a substantive impact on rental demand as several tax benefits of homeownership have been altered. These changes will weigh on first-time homebuyers in high-tax states the most, keeping young adults in the rental pool longer. Elevated completions in 2019 will bring the total apartment additions since 2012 above 2.1 million units, a net inventory gain of approximately 13 percent over eight years.  Vacancies is forecast to remain at just 4.6 percent in 2019. With rising labor and materials costs, tighter lending, and a shortage of skilled construction labor available, the pace of construction should begin to ebb in 2020.

          According to CBRE’s 2019 Multifamily Outlook Report, multifamily completions will remain high in 2019, but construction starts will finally fall, promising greater market balance in 2020. Secular and cyclical trends are positioned to remain highly favorable for multifamily demand, causing robust net absorption next year. Nevertheless, vacancies will inch up and rent growth will be under its long-term average. The multifamily sector will continue to attract high levels of investment and debt capital, and workforce housing will remain an appealing investment strategy given its favorable supply/demand balance.

ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and real estate investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for Real Estate Studies, a real estate research organization. To learn more about the Center for Real Estate Studies, please visit our web site at http://www.calstatecompanies.com

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