Why the Rental Vacancy Rate Is Still Close to All-Time Lows

Vacancy rate is at a low

The rental vacancy rate was consistently above 10% between 2008 and 2010, but it has declined rapidly since then. For the third quarter of 2015, the rental vacancy rate was at 7% compared to 7.3% in the previous quarter. This was the second lowest vacancy rate since 1994.

Why the Rental Vacancy Rate Is Still Close to All-Time Lows

The rental vacancy rate is released 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.

Homes are 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. Plus, 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 though it inched up marginally to 63.8% in the fourth quarter.

Rents are at an all-time high

Demand for apartments and rental houses is now pushing up rents, which are at an all-time high. The data from the Commerce Department shows that the monthly median asking rent for vacant rent units increased to $850 in the fourth quarter of 2015 compared to $799 during the same period a year ago.

Builders taking advantage

In view of the higher rentals, many homebuilders including Lennar (LEN), Toll Brothers (TOL), KB Homes (KBH), CalAtlantic Group (CAA), and D.R. Horton (DHI) have either already entered the rental home market or are planning to do so.

Long-term investors in the homebuilders stocks can diversify their holdings by investing in homebuilder ETFs. Lennar (LEN) forms 10.3% of the iShares U.S. Home Construction ETF’s (ITB) holdings while D.R. Horton (DHI) forms 11.8%, followed by PulteGroup (PHM) at 7.7%, and Toll Brothers (TOL) at 6.5%.