Unemployment Fuels Fourth Quarter Drops in Rental Prices

The apartment vacancy rate reached 8 percent last year, the highest level in 30 years, causing rents to fall 3 percent, according to a Wall Street Journal story.  Landlords are now facing an uphill battle to convince tenants to renew their leases, especially in cities like Tucson, Ariz., Charlotte, N.C., and Lexington, Ky., which showed the most dramatic vacancy increases.  According to the article, “Apartments have been squeezed because younger workers, who are more likely to rent, have experienced the brunt of job losses during the downturn.”  Potential renters are instead deciding to live with family members or reduce living expenses by doubling up. 

Similarly, an oversupply of new units is creating financial woes for landlords.  Last year, 120,000 new units hit the market, including condos which were intended to be sold but became rentals, which proprietors then lowered prices for in order to fill.  However, many of these construction projects gained financing before the credit crunch halted further development.  The expected decrease in supply of new apartments come 2011 (the number should fall by half) means landlords can look forward to raising rents once unemployment figures improve.

On the homeowner front, Bloomberg reports that federal efforts to relieve homeowner plight by lowering interest rates are really only a temporary fix that may backfire soon, worsening the foreclosure crisis this year—another reason why renting now is not a bad option. 

Also in today's Personal Savings news:
Principal Cuts on More Lender Menus as U.S. Foreclosures Rise (Business Week)