uploads///Chart  Rental vacancy

Low Rental Vacancy Rate Pushes Builders into the Market

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Apr. 3 2015, Updated 4:06 p.m. ET

At its twenty-year nadir

The rental vacancy rate is published quarterly by the U.S. Census Bureau. It refers to the percentage of rental homes that are vacant for a particular period and are available for rent. The rental vacancy rate was consistently above 10% between 2008 and 2010, but it declined rapidly to 7% by the end of 2014.

This 7% rental vacancy rate was 1.2% lower than it was in the fourth quarter of 2013 and 0.4% lower than in the third quarter of 2014. In 2014, the rental vacancy rate declined constantly throughout all four quarters. We’re now seeing the lowest vacancy rate since the last quarter of 1993.

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Homeownership still not affordable

The drop in the rental vacancy rate indicates that owning a home still isn’t affordable for many people, despite the economic revival. As well, many people are simply better off renting a property than owning.

The homeownership rate dropped to a 20-year low in the fourth quarter of 2014. At the same time, the number of people preferring to rent accommodation grew. From 31% in 2004, the renter share of all US households climbed to 35% in 2014.

Rents are up

Of course, the demand for apartments and rental houses is now pushing up rents, which were up 3.3% in December 2014 compared to a year ago. And, if they’re looking to buy, the higher cost of renting is making it more difficult for renters to save for a down payment. So, they’re renting for a longer period of time and delaying purchasing a home.

In view of these higher rental costs in recent years, many homebuilders including Lennar (LEN), Toll Brothers (TOL), KB Homes (KBH), Standard Pacific (SPF), and D.R. Horton (DHI) have either already entered the rental home market or are planning to do so.

We’ll keep a close watch on housing indicators and continue to analyze their impact on homebuilders as well as on homebuilder ETFs  such as the SPDR S&P Homebuilders ETF (XHB) and the iShares U.S. Home Construction ETF (ITB).

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