Just Released Fourth Quarter 2015 Leading Rental Income Markets

Top Quote The Center for Real Estate Studies (CRES) has just released their fourth quarter 2015 issue of "Market Cycles". It gives a forward look at more than 150 income rental markets with "buy and sell" recommendations. This publication gives the real estate investor a two-year head start on where and when to invest in income rental properties. End Quote
  • (1888PressRelease) January 12, 2016 - Palos Verdes, CA - The current number of markets in the "Sell Phase" is thirty, according to Eugene E. Vollucci, Director of CRES. The number of markets in the "Buy Phase" is twenty-three. Mr. Vollucci states, "This quarter the three top buy recommendations are Lakeland FL, Minneapolis MN and Palm Bay, FL. The three top sell recommendations are Brownsville TX, Dayton OH and San Antonio TX. According to Mr. Vollucci, The U.S. apartment vacancy rate eased to its lowest level in more than a decade, but stagnant income growth slowed rental increases.

    U.S. Bureau of Labor Statistics reports that the U.S. economy closed 2015 on a strong note with healthy late year job creation. National employment expanded by approximately 2.5 million jobs in 2015. Healthcare occupations and industries are expected to have the fastest employment growth and to add the most jobs between 2014 and 2024, the U.S. Bureau of Labor Statistics reported today. With the increase in the proportion of the population in older age groups, more people in the labor force will be entering prime retirement age. As a result, the labor force participation rate is projected to decrease and labor force growth to slow. This slowdown of labor force growth is expected, in turn, to lead to Gross Domestic Product (GDP) growth of 2.2 percent annually over the decade. This economic growth is projected to generate 9.8 million new jobs-a 6.5-percent increase between 2014 and 2024. Third-quarter GDP registered a 2.1% increase, following a stout 3.9% midyear gain. U.S. hourly wages surged 2.5% annually in October, compared to a 1.8% rise in 2014. Additionally, consumer credit notched the largest increase on record by ascending $28.9 billion in September. U.S. payrolls are forecast to rise by 2.4 million jobs.

    Developers added 355,000 market-rate units to inventory over the course of 2015, putting upward pressure on vacancy in some metros. As supply trailed demand, vacancy plunged across the U.S. The rate receded to 5% in 2014, the lowest since 2000. The vacancy improvement coincided with the positive net absorption of 380,900 units, outpacing supply by 141,200 rental income properties. Vacancy in all metros recorded improvements.

    Berkshire Hathaway reported that despite the sharp rise in apartment stock, pent-up demand from previous years' limited supply increases mitigated the impact of new units in many markets. Consequently, nationwide apartment vacancy ended 2015 at 5.2%, unchanged year over year.

    Persistent apartment absorption and job creation facilitated robust rent gains. National asking rents appreciated 4.9% to $1,250 per month in the past four quarters. Moreover, national effective rents rose at a quicker rate, ascending 5.3% to $1,244 per month. Asking and effective rents are projected to rise 3.7% and 3.4% to $1,296 and $1,286 per month, respectively. As a result, concessions will tick up to 0.8% of asking rents by year-end. Historically low interest rates and favorable apartment fundamentals bolstered multifamily investment activity in 2015; preliminary sales data indicates a 12% rise in the number of apartment transactions.

    A Survey by the Department of Commerce reported that there were approximately 67,500 privately financed, nonsubsidized, unfurnished, rental apartments completed in buildings with five units or more in the second quarter of 2015. That figure was 24,200 more than the revised estimate of 43,300 units constructed in the previous quarter. The 67,500 completions in the second quarter of 2015 were also higher than the 50,300 completions reported in the same quarter of 2014.

    An estimated 64 percent (seasonally adjusted) of the new completed, unfurnished apartments built in the second quarter of 2015 were rented (absorbed) within three months of completion. This estimate did not differ significantly from the seasonally adjusted figure from the previous quarter (63 percent) nor from the seasonally adjusted figure (61 percent) in the second quarter in 2014

    The not-seasonally-adjusted 3-month absorption rate of 70 percent for apartments completed in the second quarter of 2015 was nine percentage points higher than the previous quarter (61 percent). There was no significant difference between the 2015 second quarter not seasonally-adjusted 3-month absorption rate and the 66 percent reported in the second quarter of 2014 The median asking rent in the second quarter of 2015 for all privately financed, nonsubsidized, unfurnished rental units completed in buildings with five units or more was $1,330. This figure did not differ significantly from the revised median asking rent of $1,407, in the previous quarter The median asking rent in the second quarter of 2015 did not differ significantly from the median asking rent of $1,266 ($1,272 in 2015 dollars) in the second quarter of 2014.

    Eugene E. Vollucci, is the Director of The Center for Real Estate Studies, a real estate research center He is author of four best selling books and many articles on rental income investing, income rentals, real estate and taxation. To purchase a subscription to Market Cycles and to learn more about the Center for Real Estate Studies, please visit us at http://www.calstatecompanies.com

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