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Rental Vacancy Rate Dips to Its Lowest Level in 30 Years

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Lowest level in thirty years

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

In the second quarter of 2015, the rental vacancy rate came in at 6.8% compared to 7.1% in the previous quarter. 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 1985.

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Homeownership still unaffordable

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

The homeownership rate dropped to a 30-year low in the second quarter of 2015. 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 at an all-time high

The huge demand for apartments and rental houses have pushed up rents to an all-time high. Data from the US Department of Commerce show that the monthly median asking rent for vacant rental units increased to $803 in the second quarter 2015, up from $799 in the first quarter.

This rise in rents can be attributed to the robust demand for apartments. As we discussed in the previous part of this series, the homeownership rate fell to its lowest level in almost five decades in the second quarter. Strict lending standards and tight inventories kept many families tethered to the rental market.

Builders taking advantage

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

To invest in the broader homebuilding sector, consider ETFs such as the SPDR S&P Homebuilders ETF (XHB) or the iShares U.S. Home Construction ETF. Lennar (LEN) forms 3.39% of XHB. Meanwhile, D.R. Horton (DHI) forms 11.7% of ITB, and PulteGroup (PHM) makes up 8.41% of ITB.

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