Rents Drop as Vacancies Rise

It seems like not too long ago the buzz was vacancies were down and rents up as less people were qualifying to buy a home. This probably would've remained true had our economic woes contained themselves to just the housing sector. This was our original hope, and obviously not what has ensued. Now people are changing their living patterns as they begin to feel the effects of our recession.

A recent article in BusinessWeek stated landlords are being forced to offer steep discounts to fill their increasing vacancies. With unemployment currently sitting at 7.2%, roommates and families are beginning to move-in together to save money during our recession. This is a dramatic change as just recently the United States was reaching record lows in its average household size.

I can attest to this change, as I recently had my personal 4 bedroom duplex on the market for rent and had tribes of people interested in the unit -- the majority of prospects had 7-8 people living together. Knowing the wear-and-tear this would cause my property, I dropped the rent and marketed the unit as a 3 bedroom to get the vacancy filled quickly. The rent decrease was also brought on by the stiff competition apartment complexes offered with no credit checks and free month's rent.

The hardest hit with vacanies are high-rise luxury apartments. My guess is this has to do with their location in business districts suffering from higher unemployment, and because Americans are starting to reconsider the extra expense of luxury living.

AXIOMetrics, a Dallas-based apartment data company, assembled a list of the 25 large metros where the rate of rent declines accelerated most in the fourth quarter of 2008. Their study only included apartment rentals, not single-family rentals.

**Note: metro areas are ranked by "rent drop," the change in the absolute rate of rent growth. For example, if rental rates increased by 1% in the fourth quarter of 2007 compared to the third quarter of that year and fell by 2% in the fourth quarter of 2008 compared to the previous quarter, then the "rent drop" would be -3%. Confused? So was I at first, and it still doesn't make too much sense why they figure it like this. Nonetheless, here are the stats:

Metros with the Biggest Rent Drops

1. Salt Lake City -5.7%

2. Nassau-Suffolk (Long Island, N.Y.) -4.7%

3. Raleigh-Cary, N.C. -4.0%

4. New York-Wayne-White Plains, N.Y./N.J. -3.7%

5. Seattle-Bellevue-Everett, Wash. -3.5%

6. Portland-Vancouver-Beaverton, Ore./Wash. -3.2%

7. San Jose-Sunnyvale-Santa Clara, Calif. -3.0%

8. Charlotte-Gastonia-Concord, N.C. -2.9%

9. Oakland-Fremont-Hayward, Calif. -2.9%

10. Boston-Cambridge-Quincy, Mass. -2.8%

11. Santa Ana-Anaheim-Irvine, Calif. -2.8%

12. Los Angeles-Long Beach-Glendale, Calif. -2.7%

13. Oklahoma City -2.6%

14. Austin-Round Rock, Tex. -2.6%

15. Nashville-Davidson-Murfreesboro, Tenn. -2.5%

16. Atlanta-Sandy Springs-Marietta, Ga. -2.3%

17. San Francisco-San Mateo-Redwood City, Calif. -2.3%

18. Jacksonville, Fla. -2.2%

19. Minneapolis-Saint Paul-Bloomington, Minn. -2.2%

20. Memphis -2.1%

21. Las Vegas-Paradise, Nev. -2.1%

22. San Diego-Carlsbad-San Marcos, Calif. -2.0%

23. Birmingham-Hoover, Ala. -2.0%

24. Sacramento/Arden-Arcade/Roseville, Calif. -1.9%

25. Richmond, Va. -1.9%