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The Honolulu Advertiser
Posted on: Friday, January 31, 2003

Apartment rental market falls

By Kathleen M. Howley
Bloomberg News Service

WASHINGTON — Apartment rental demand fell in the fourth quarter to its lowest level in a year, as low mortgage rates lured renters into buying homes, according to the National Multi Housing Council.

The Washington-based trade group's Market Tightness Index fell to 29 from 35 the previous quarter, the lowest since falling to 4 in the fourth quarter of 2001. The survey showed that 47 percent of respondents said market conditions worsened in the closing months of the year, 49 percent said conditions remained the same, and 4 percent said demand rose.

Falling mortgage rates that made it more affordable for renters to buy homes coupled with a rise in apartment construction led to the highest apartment vacancy rates in almost a decade. A slow-to-rebound apartment market has prompted analysts to pare their earnings estimates for landlords such as Equity Residential and Apartment Investment & Management Co. in recent months.

"The industry hasn't really recovered from the recession yet," said Mark Obrinsky, the group's chief economist. "In order to see a real recovering in demand for apartment units we need to see sustained job growth."

Apartment vacancies ended the year at 10.5 percent, according to the U.S. Census Bureau. The rate is the highest since the first quarter of 2002, when vacancies hit a nine-year high of 10.8 percent. The average U.S. rate for a 30-year fixed mortgage was 6.54 percent in 2002, down from 6.97 percent in 2001, according to Freddie Mac, the second-largest buyer of U.S. mortgages.