Santa Came Early ... And He Brought Renters

 As everybody scrambles to complete their to-do lists before heading out for the holidays, let's take a moment for some jolly news. Early results from MPF Research's December survey of U.S. apartment market fundamentals show 4th quarter's performance notably surpassing expectations.

U.S. apartment occupancy normally backtracks an average of about 0.6 points between September and December, reflecting the slowdown in leasing activity that is typical at the end of the year. But in 2009, it looks like occupancy will be up a little bit on a quarterly basis, probably somewhere around 0.2 points to 0.4 points for the country as a whole. More than two-thirds of the 64 metros that form the heart of MPF Research's national coverage are exhibiting quarterly upturns in occupancy at the end of the year.

Furthermore, after operators bought demand with big rent cuts for most of 2009, pricing now appears to be moving toward stabilization. Rents still came down between September and December. But instead of slicing rates at a quarterly pace that had been averaging about 1.5 percent across the nation, it seems that 4th quarter's loss will be near 0.5 percent. There are still some markets that get big lumps of coal for the quarter ... we're looking at you Houston, Denver and Salt Lake City, for example. But in most areas, December's rents look pretty similar to September's pricing, and a few spots actually have eked out minor price upturns.

What spurred the substantial absorption that appears to have occurred during 4th quarter? On the surface, there's not an obvious explanation, but a couple of factors do come to mind as possibilities. First, it seems likely that select metros have already moved back into job production mode. The initial report from the Bureau of Labor Statistics (BLS) said that the country lost only 11,000 jobs during the month of November, and the pattern exhibited during recent months has been for the BLS to make positive adjustments to the job stats in their ensuing revisions to the data. Even if that figure of slight loss in November holds, the overall drop is too small for some markets not to be adding jobs now. Second, some of the leasing activity that was initiated during 3rd quarter's normal peak demand period may have just spilled over into 4th quarter. Operators are telling MPF Research that renters are taking far longer than usual to make leasing decisions, shopping more properties and often visiting several times before signing leases. Thus, some prospects who started looking for apartments during the usual 3rd quarter leasing bump perhaps didn't make final decisions on where to live until well into 4th quarter.

These early results for 4th quarter come with about 60 percent of MPF Research's routine total sample of more than 5 million units collected, cleaned and loaded into the database. Thus, final results certainly will vary somewhat from the preliminary findings. But it would take truly terrible occupancy and rent figures from what's left to be surveyed for ultimate findings not to show that we probably reached the inflection point in the apartment market's performance cycle at the end of 2009.

Originally published on December 18, 2009, by Greg Willett

Market Dynamics is an examination of key influences on the apartment industry by MPF Research, the industry's most trusted source of apartment market intelligence. To receive the latest Market Dynamics newsletter in your e-mail inbox, please click here to subscribe.