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WASHINGTON, DC-Despite reports of improvement from industry professionals, it appears that conditions in the greater multifamily market are continuing to deteriorate. The US Department of Commerce’s Census Bureau recently announced that the national vacancy rate for rental properties has reached a record high of 11.1%, or 4.59-million units, at the end of the third quarter. That figure is 50 basis points over the second quarter rate and 9.9% higher than Q3 2008.

Of all the housing units in the US, renter-occupied residences accounted for 27.7%. While vacant housing units comprised 14.5% of the country’s total housing inventory, units on the market for rent accounted for just 3.5% of the whole. By comparison, the national homeownership vacancy, at 2.6% in Q3, ticked down by 20 basis points over the past year, but remained relatively flat quarter-over-quarter.

Despite the tendency to concentrate apartments around metropolitan centers, the vacancy rate for rental units in major US cities was the same as the vacancy rate across national suburban markets, both at 11.2% in the third quarter. The rate outside of metropolitan statistical areas came in at 10.6%. Regionally, rental properties in the South tended to have the highest vacancies, 14.2% on average, whereas those in the Northeast were the lowest, at 7.5%.

On the revenue side, rents for residential units took a dip along with occupancies. According to the Bureau of Labor Statistics’ Consumer Price Index, rental rates declined for the third consecutive month in September, this latest time by 60 basis points, on a seasonally adjusted annual basis.

“Although the magnitude of the decline may not seem like an especially severe indication of weakness in the rental market, any decline in the nominal rent measure is unusual by historical standards,” remarks Paul Emrath, assistant vice president of housing policy research for the National Association of Home Builders. Since the index’s inception in 1981, he adds, the only other time the CPI rent component showed a monthly decline was in 1992–at least, before July. Adjusted for inflation, that decline brings “real rents” down to 111.3–the lowest the index has been for a year and 1.6 points below the peak reached in May.

Those working in the industry have a rosier view of the market. Senior multifamily executives polled by the National Multi Housing Council for its most recent Quarterly Survey of Apartment Market Conditions indicated that the sector is showing some signs of improvement.

In the case of basic fundamentals such as vacancies and rents, conditions remain weak, but have strengthened between the second and third quarters, with the market tightness index moving up from 20 to 31–based on a scale of 0-100. Although this was the ninth consecutive quarter that the index hit sub-50, it was also the fourth quarter in a row that the level has risen.

What is doing noticeably better was sales and financing activity, concurred those polled.Hitting its highest level in four years, the sales volume index rose from 44 to 59, with 90% of executives reporting that conditions have either remained unchanged or have improved over the prior quarter.

Equity players are back in the market, funneling more cash into the sector. That equity financing index rose from 39 to 58, the highest level in three years, with one-quarter of participants seeing more equity available in the market.

The debt financing index also rose from 39 to 59–its highest level in three years. More than a quarter of executives said it’s a better time to borrow money than in June.

“The broad improvements in sales volume and debt and equity financing suggest the transactions market may finally be thawing,” says NMHC’s chief economist, Mark Obrinsky. “Nearly half of the respondents indicated that the gap between what sellers are asking for and what buyers are offering–the bid-ask spread–has narrowed.”

Still, it’s not time to celebrate just yet. “The economic headwinds are still strong,” Obrinsky warns, “As the job market continues to sag, demand for apartments continues to slip.”

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