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Apartment Industry – Improving or Declining?

Submitted by J. Debes

Many economists and industry leaders worry that oversupply and increasing costs of living indicate a cooling of the recently hot apartment industry.  Rents throughout the US are rising faster than incomes by about a $1.75 for every dollar earned according to the Center for Housing Policy.  The combined cost of living for housing and transportation in the 25 largest metro areas increased by 44% since 2000 while household incomes have only increased by 25%.  Census Bureau data on income and poverty showed that a middle classed family’s total earnings in inflation-adjusted dollars was lower in 2012 than it was in 1989.  Property and Portfolio Research (CoStar’s analytics and forecasting company) reported that the total number of units delivered is now outpacing net absorption in the top 54 markets it analyzes.

Despite these unfavorable market conditions, US demographics still favor the industry.  More than 65 million Echo Boomers ages 20 to 34 could enter market (more than any time since the 70’s) by 2020 provided there is job creation.David Neithercut of Equity Residential recently said there arecurrently more than 2 million 20- to 30-somethings living at home with Mom and Dad.  Industry leaders and economists all agree that the outlook for the apartment industry all hinges uponsufficient job creation.  The apartment industry will continue to flourish if Echo Boomers have enough income to leave home to start new households.  Future results will vary by market.  In Rochester, the unemployment rate had dropped four consecutive months in a row before July because of increasing jobs.  At 7%, the unemployment rate was down from 8.2% the year before.

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