Wednesday, April 06, 2011

Forecast: Rising Rents to slow House Price Declines

by Bill McBride on 4/06/2011 08:23:00 PM

As I mentioned this morning, the sharp decline in the rental vacancy rate, to 6.2% in Q1 2011, suggests that the excess supply of housing is being absorbed. Here is a graph of the Reis apartment vacancy rate:

Apartment Vacancy Rate Click on graph for larger image in graph gallery.

The vacancy rate is back to early 2008 levels, and is not far above the rate of 2006 (around 5.7%). As the vacancy rate falls, rents will rise and this will help support house prices. See this post on the price-to-rent ratio.

Housing economist Tom Lawler predicted this afternoon: 'Rising rents combined with a substantial reduction in the “excess supply” of housing (single family as well) will also help stem the recent “renewed” downturn in US home prices well before the end of this year.'

I think prices might fall for another year or two in real terms (inflation adjusted), but I agree that it is likely that nominal house prices will bottom this year.

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