NYC apartment vacancy rates well-placed to recover

As the country begins to return normal next year, the hardest hit apartment markets in the country will recover. New York City looks particularly well-placed to benefit from returning non-office-based workers. Combined with aggressive rent cuts, which have left the costs of renting in NYC compared to the rest of the country at its lowest since records began in 2000, we expect vacancy rates will quickly drop back from 4.4% in the third quarter to 4.0% by end-2021.
Matthew Pointon Senior Property Economist
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More from US Housing

US Housing Market Chart Book

Housing activity surges even as mortgage rates rise

Housing market activity has surprised on the upside over the past month and home sales look set for a strong end to the year. Even as mortgage rates increased to an eight-month high, home purchase mortgage applications have surged, pending home sales are trending up, and a rise in buyer traffic points to a resurgence in new home sales. The arrival of the Omicron variant has also brought interest rates down, which may give activity an added boost over the next month or so. However, stretched affordability and a lack of inventory means the resurgence in existing home sales is likely to prove short-lived. Indeed, house price growth is slowing, and we expect it will fall from around 20% y/y now to 3% by end-2022. The rental market is also booming, with vacancy rates falling back even faster than we expected as cities have reopened.

7 December 2021

US Housing Market Data Response

Mortgage Applications (Nov.)

A rise in mortgage rates to an eight-month high of 3.31% by the end of November failed to dampen home purchase demand, which surged to a nine-month high. The drop in 10-year Treasury yields from the arrival of the Omicron variant implies mortgage rates will fall back over the next couple of weeks, which may provide some further support to demand. But with affordability stretched we doubt the current level of home purchase applications can be sustained beyond the next few weeks.

1 December 2021

US Housing Market Data Response

Case-Shiller/FHFA House Prices (Sep.)

Annual house price growth fell for the first time in 16-months in September, and stretched affordability means it should continue to slow. It is too soon to say what impact the arrival of the Omicron variant will have on the housing market. But one immediate effect has been a fall in interest rates, which if sustained may give prices some support over the remainder of the year.

30 November 2021

More from Matthew Pointon

US Housing Market Chart Book

Home demand drops as prices surge

Despite mortgage rates seeing little movement in recent months, mortgage applications for home purchase have dropped to their lowest level since April last year. That implies home sales have further to fall. Booming house prices, which reached a record high 15% y/y in April, and a shortage of inventory are constraining sales. While low mortgage rates mean affordability is still historically favourable, lenders are not easing lending standards and that will be weighing on purchasing power. By contrast, rental demand is recovering as cities have reopened. The recovery in the labour market will cut arrears, and strong earnings will help boost rental growth. Total apartment returns will average a healthy 6% p.a from 2021-25.

7 July 2021

US Commercial Property Outlook

Major Apartment Markets Outlook (Q2 2021)

With cities reopening apartment demand will see a substantial rise this year, boosted by the arrival of households who delayed a move last year. Vacancy rates will fall back in all six major cities covered in this Outlook with those hit hardest during the pandemic, NYC and D.C., enjoying the most vigorous recovery in demand as tenants return. Strong prospects for NOI growth mean yields will either edge back or hold steady this year, driving substantial capital growth in all the cities. Beyond that, a gradual rise in yields and shift to larger apartments will weigh on returns. But even San Francisco, which will suffer from its high concentration of tech workers, should see total average returns of around 5.0% p.a. from 2021-25. At the other end of the spectrum, D.C. will outperform with average total returns of 8.5% p.a.

29 June 2021

US Housing Market Update

Valuations still reasonable despite house price boom

The housing market hit a milestone in April, with real house prices rising above the previous peak recorded during the boom of the mid-2000s. But that doesn’t mean valuations are at dangerous levels. House prices look far more reasonable when gains in incomes and falls in mortgage interest rates are taken into account. With house price growth now set to slow, the prospect of another bubble forming is therefore low.

22 June 2021
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