By Ilaina Jonas
NEW YORK, Oct 1 (Reuters) - Finding an apartment to rent goteven harder in the third quarter, as the U.S. apartment vacancyrate fell to its lowest level in more than a decade, accordingto an industry report released on Tuesday.
The national apartment vacancy rate fell 0.1 percentage point to 4.2 percent in the third quarter from the secondquarter, according to a preliminary report by real estateresearch firm Reis Inc.
It was the lowest vacancy rate since the third quarter of2001 when it was 3.9 percent. Some 47 out of 79 markets thatReis tracks posted vacancy decreases.
Despite the decline in the vacancy rate, a weak job marketand stagnant wages have prevented a commensurate rise in rents,Reis said.
While the average U.S. effective rent in the third quartergrew by 1 percent sequentially, and 3 percent year-over-year,the increase in rent was less than what would have been expectedin such a tight market, Reis said.
Effective rent is the rent landlords receive after months offree rent and other perks.
"Demand has been so strong to push vacancy rates to such alow level, yet we haven't seen rent growth of the magnitude wewould normally expect," Reis Senior Economist Ryan Severinosaid.
With such a low vacancy rate, effective rent would have beenexpected to grow by about 4 percent to 5 percent year-over-yearbut was stymied by lack of job and income growth, Severino said.
"If median household income is growing at somewhere about 2percent a year, give or take, once you back out inflation howmuch money is left for increased spending on rent? Not a lot,"he said.
Net absorption, the number of apartments rented over thosethat are unoccupied, reached 40,392, the most so far this yearand 54 percent higher than a year earlier.
New construction that is expected to come on line next yearmay fuel a rise in the vacancy rate and could slow the increasein rental rates, Severino said.
Over the past five years, the apartment sector has been thebeneficiary of the U.S. housing bust, the economic recovery,high mortgage requirements, and a constrained supply of newapartments.
Those factors have pushed down the vacancy rate andallowed apartment owners, such as Equity Residential,Essex Property Trust Inc and AvalonBay Communities Inc to raise rents.
Rising mortgage rates in the third quarter also dampenedhomeownership, forcing people to rent longer.
The 4.2 percent average vacancy rate in the third quarterwas down from 4.3 percent in the prior quarter and from 8percent in late 2009.
At 2 percent, New Haven, Connecticut had the lowest vacancy.Memphis, Tennessee had the highest vacancy rate, at 8.2 percent.
The average asking rent rose 0.9 percent in the thirdquarter to $1,121.16 per month. The average effective rent was$1,073.29.
San Francisco and San Jose, U.S. capitals of the technologyindustry, saw the highest effective rent increase, both up 2.2percent to $2,043.02 per month for San Francisco and $1,685.72for San Jose.
New York remained the most expensive place to rent in theUnited States with an average effective rent of $3,049.37 permonth, up 0.9 percent. The cheapest was Wichita, Kansas, at$528.95 per month, up 0.8 percent.
- Real Estate