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CRE Finance World, Summer 2013

347 basis points compared with the average decline of 200 basis points (see Chart 10). Despite the stepped-up pace of single-family conversions to rental units, supply conditions in the single-family rental market are also tightening, as evidenced by the 115-basis point drop in the single-family rental vacancy rate over the same period. Chart 10 Rental Vacancy Rates Decline Sources: Census Bureau, Moody’s Analytics Demand has been strong enough relative to the supply of rental units that rents are rising. Specifically, rents are rising for large investor-grade apartment buildings concurrent with the decline in rental vacancy rates. According to REIS Inc., the effective apartment rent among the nation’s largest metro areas increased by an average pace of 2.8% year over year since 2011 (see Chart 11). By contrast, rents declined by 2% in 2009 and were nearly flat in 2010. Similar to the trends painted by the census data on apartment buildings with 10 or more units, the REIS rental vacancy rate has also declined more than 300 basis points since the 2009 peak. California metro areas are enjoying the strongest pace of rent growth. San Francisco posted gains of nearly 6% in the first quarter of 2012 and effective rents in San Jose grew by nearly 5%. Both markets benefit from strong tech growth and limited apartment construction. High incomes and young households that are associated with tech industry employment help to drive demand for class A apartments. CRE Finance World Summer 2013 56 Chart 11 Rents Rising for Investor Properties Sources: REIS Inc., Moody’s Analytics Rising rents are positive for investors in multifamily properties and help to lift the price of apartments. Although multifamily construction avoided the wild swings that hit the single-family market over the last decade, the swings in multifamily property values have been just as large, with apartment prices lagging single-family price trends slightly during the housing correction. Unlike the single-family house price, however, apartment prices, as measured by the Moody’s/ RCA apartment price index, have turned around sharply, posting year-over-year gains of as much as 20% since 2010 (see Chart 12). The apartment price index stands 8% below its prerecession peak. However, it has recovered more than the value lost during the recession, standing at its mid-2008 level. By contrast, the CoreLogic national house price index is beginning to claw its way up from the bottom but stands 27% below peak. Chart 12 Apartment Price Cycle Was Severe Sources: CoreLogic, Real Capital Analytics, Moody’s Analytics Multifamily Housing: On a Path of Solid Growth


CRE Finance World, Summer 2013
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