In major reversal, apartment vacancies rise

Did you really miss the "higher rents and lower landlord concessions" part of your own post? Hard to believe, but that's what it looks like.

If I'm were a landlord, I'd be fine with higher rents and lower concessions on 99%, with 1% vacant, up from 0.9%. Vacancy moving up 0.2% in the face of higher rents/effective rents says that price elasticity of demand is low. More good news for landlords.

sidelinesitter...i don't understand what you're posting...i like what somewhereelse is saying..

julia - I understand that you like it. Who (other than landlords) wouldn't? The problem is that what he posted doesn't make any sense. His own post contradicts his initial statement.

This is just the usual swe 'proof by unsupported assertion' methodology

Agree: SWE is cherry-picking data here. To be fair, Crains is playing the blowhard as well.

Julia, you might like it, but I wouldn't expect to negotiate my rent down on the basis of this data:
"The vacancy rate has been declining every month since November. In July, it reached its lowest point in nearly three years, said CitiHabitats."

Sideline is right.

I think the point of the article is to say that in a month that is supposed to see the highest demand and therefore lowest vacancy rate, the rate actually went up. The rationale is supposed to be that landlords increased rents and reduced incentives, which inhibited leasing activity.

The question now is whether or not this trend will continue, and whether or not the incentives will come back. Hard to say...

@evnyc - yeah, Crains is having a big week on the pointless drivel front:
http://streeteasy.com/nyc/talk/discussion/22551-get-ready-for-a-really-really-small-wall-street

Wait, now we are taking Citihabitats at their word? When vacancies were declining, I believe it was decided that they were utterly unreliable, broker shill? Interesting that now that vacancies are up, the tune has changed.

@printer - I think Crain's and swe are taking Citihabitats at their word. I'm saying that the number is noise, not signal. And see evnyc's blowhard comment.

"Did you really miss the "higher rents and lower landlord concessions" part of your own post? Hard to believe, but that's what it looks like."

No, you just missed the biggest point of them all. From the (limited) data, seems like they're having difficulty getting what they're asking for.

"I think the point of the article is to say that in a month that is supposed to see the highest demand and therefore lowest vacancy rate, the rate actually went up. The rationale is supposed to be that landlords increased rents and reduced incentives, which inhibited leasing activity.

The question now is whether or not this trend will continue, and whether or not the incentives will come back. Hard to say..."

Bingo, NYC. Good to see someone reads all the way through.

> Agree: SWE is cherry-picking data here.

Well, you're off then. I'm not cherry-picking data. I'm not even picking data. And neither is Crain's... even they note the data going back to Nov.

sowherelse made a perfectly valid point: as soon as prices jump, vacancies rise. in other words, the strong demand that the real estate industry trumpeted is a fluke.

here is a bit of personal experince (my lease is up in october): (i) I have signed up for Brodsky's rentals e-mail blast. Used to get an e-mail about once per week. Now it is once per day. Contacted the leasing office at a building where I would be most interested in renting (I already visited the building in August) -- so far they are reluctant to cut prices, but they called me and e-mailed asking to stop by nd give the apartments a second look. (ii) another hgh-end building in the neigborhood. They have 2 one-bdrms available, both on high floors, both renovated. One is available now, the other one oct 15. I am interested in the latter. Before I even asked for a concession, they said rent was negotiable + there is one month free. For those who are curious, the asking rent is $3,000 and net effective $2,769 on a 1-yr lease. The apartments are renovated, with good views.

Both places are no-fee, of course.

These are the early days of me looking but so far pricing power that the real estate industry claims has returned seems to be just wishful thinking.

"as soon as prices jump, vacancies rise" In other words, supply and demand works like it says in the econ textbooks? OK, I can get behind that idea. But if demand (a.k.a., occupancy, a.k.a., 1 - vacancies) only falls 0.22% all that shows is that demand is highly INsensitive to price, or, in other words, that elasticity is low.

Of course, this whole discussion is based on the (probably spurious) assumption that one data point picked out of the blue by an idiot reporter trying to hit his quota for column inches even means anything in the first place. The reality is that swe made up his mind what he thought on this issue before Crains ever published the article and, like he usually does, was simply waiting for some random piece of data to come along that he could grab onto to "support" his view.

Granted, CityHabitats is a terrible outfit and no, I do not take their word at face value on anything. But a 1.1% vacancy rate is absolutely minuscule. .88% vs. 1.1% is practically a rounding error.

Small differences here people. Why people worry about a couple extra percent is baffling to me. You'd run out on to the street and spend the next 3 months finding a place dealing with the aggravation, fees, applications, new neighbors, super, noise at night, new address, new commute, packing, finding movers, moving, taking time off from work, new repair requests, etc.

I'm with http://www.RDNY.com. We specialize in No Fee apartments. I'm amazed at the assertion from CitiHabitats that vacancies went up in August. On the contrary, we saw our inventory go from nearly 5,000 available apartments in the beginning of June down to 4,000 apartments by the end of August. A drop of nearly 20%. That's consistent with prior history (but not last year, as vacancy numbers remained high). This year, there was almost a frenzy in the last two weeks of August, leading up to the September deadline that so many people have.

I can partly explain the discrepancy this way; RDNY.com is 100% no broker fee listings. CitiHabitats is fee (commission) based. As landlords reduced or eliminated incentives, such as paying the broker fee, people migrated away from CitiHabitats to RDNY.com and other companies, seeking to avoid broker fees. Many of the apartments listed at CitiHabitats are individually owned coops and condos, where the renter would not only typically pay the broker, they also have steep application fees, credit check fees, and lots of paperwork for coop boards etc. Why put up with that nonsense? So CitiHabitats lost customers for those kinds of properties, while plain old rentals continued to rent - with no broker fee - from us.

But as is also typical, now that the September frenzy is over, we are seeing our inventory rise again. We are back up from 4,100 on 9/1/10 to 4,450 today. Inventory will continue to get higher.

Thank you all for reading this.

none of you actually rent apartments. i do...here are a few notes from someone "in the trenches"
1. july was in fact quite a bit busier than august was..

2. vacancies are indeed up, a bit dramatically in some places for this early point in sept.

3. few landlords have adjusted their prices down-yet. i expect concessions to return and rents to come down slowly over the next 30-60 days.

4. all of that said, this is still ny, and rentals are seasonal. this was a better rental season than last.

Aptsill
about 3 hours ago
ignore this person
report abuse I'm with http://www.RDNY.com. We specialize in No Fee apartments. I'm amazed at the assertion from CitiHabitats that vacancies went up in August. On the contrary, we saw our inventory go from nearly 5,000 available apartments in the beginning of June down to 4,000 apartments by the end of August. A drop of nearly 20%. That's consistent with prior history (but not last year, as vacancy numbers remained high). This year, there was almost a frenzy in the last two weeks of August, leading up to the September deadline that so many people have.

I can partly explain the discrepancy this way; RDNY.com is 100% no broker fee listings. CitiHabitats is fee (commission) based. As landlords reduced or eliminated incentives, such as paying the broker fee, people migrated away from CitiHabitats to RDNY.com and other companies, seeking to avoid broker fees. Many of the apartments listed at CitiHabitats are individually owned coops and condos, where the renter would not only typically pay the broker, they also have steep application fees, credit check fees, and lots of paperwork for coop boards etc. Why put up with that nonsense? So CitiHabitats lost customers for those kinds of properties, while plain old rentals continued to rent - with no broker fee - from us.

But as is also typical, now that the September frenzy is over, we are seeing our inventory rise again. We are back up from 4,100 on 9/1/10 to 4,450 today. Inventory will continue to get higher.

Thank you all for reading this.

this is nonsense-about as bad as i've ever read. ch is a rental leader in this city, no one disputes that. how many apartments did your firm rent last year? i'm with a citi competitor, and i have NEVER heard of your firm till i just read your post.

I'd guess that we'd probably all be appalled if we saw the actual methodology for this vacancy rate estimate. The "data" is probably totally meaningless given that it doesn't appear to be even remotely consistent, and no one has ever shown any interest in explaining.

Nonetheless, let's look at the story from July and the, in retrospect, spectacularly embarrassing quote from C-H:
http://online.wsj.com/article/SB10001424052748703636404575353272844640404.html?mod=WSJ_hpp_LEFTWhatsNewsCollection
Manhattan Rents on the Rise
Vacancy Rate Drops Below 1%; Emboldened Landlords Stand Firm on Price

In Manhattan, most apartments aren't sitting empty for long: A flurry of lease signings pushed the quarterly vacancy rate below 1% for the first time in nearly three years, leaving few choices for apartment seekers during the prime leasing season.
...
"It's night and day from a year ago," said Gary Malin, Citi Habitats' president. "Demand sets the market, and there is just unbelievable demand. We're back to what New York was before this downturn."
...
"You do need to be prepared to act," said Mr. Malin of Citi Habitats. "A sub-1% vacancy rate is an incredibly tight marketplace."

---
Those quotes were based on a vacancy rate that went from about 1.2% to .97%. (QOQ) and 1.88% to .97% (YOY). A less than 1% change in the vacancy rate YOY yielded a "night and day" difference in the market.

On a related topic:
http://www.economist.com/node/16847818
Deceptive bosses, it transpires, ... use fewer “non-extreme positive emotion words”. That is, instead of describing something as “good”, they call it “fantastic”. The aim is to “sound more persuasive” while talking horsefeathers.

Yup, they raised rent in my building, and there are PLENTY of vacant apartments.

eventualluy the market sets everything straight.

No matter how you slice it, renting is ALWAYS financially more beneficial over time than owning.

Let's make some financial assumptions that are borne out by decades of empirical evidence:

1) Real property prices and rents increase at the rate of income, or 0.7% per year adjusted for inflation.

2) The S&P 500 increases at a real rate of 8.0% per annum.

These being true, it is ALWAYS better to rent property than to buy, if you invest the down payment in the S&P 500. Watch:

Say you make $100,000. This implies that you can spend up to $2,333.33 per month in total housing expenses (28%).

An 80/20, 30-year fixed $375,000 mortgage at 6% gives you monthly mortgage payments of $2,248.31.

Assume that taxes and common charges amount to a VERY CONSERVATIVE 10% of total mortgage payments, or $224.83 per month.

A $375,000 mortgage implies a purchase price of $468,750, and a down payment of $93,750.

If rented an apartment for the amount of the mortgage payment, you will have paid $903,455.33 in rent over 30 years if it increases 0.7% per year.

If you invest the down payment in the S&P 500 for 30 years, $943,374.08 at the end of 30 years, for a total net profit of
$39,918.75. To that, however, add your yearly maintenance and tax payments $2,697.96, increasing 0.7% per year and accruing 8.0% per year over 30 years, and you will have earned an additional $330,084.36, making your total profit $370,003.11.

Now do the same thing for your house. If your $468,750 home appreciates at a real annual rate of 0.7%, at the end of 30 years you will have a home worth $577,863.68, for a profit of $109,113.68. Add to that the original loan of $375,000 - the rest of the equity you will have built - and you get a gross profit of $484,113.68. But you would have paid $434,393.21 in interest, so your real profit is $49,720.47. In addition, you will have spent $90,343.15 in tax and maintenance, making your GRAND TOTAL PROFIT a whopping NEGATIVE $40,622.68.

That's right! You rent for the amount of your mortgage, all values go up linearly in line with historic data over time, and you will wind up with a total profit of $370,003.11. Whereas if you buy a home you will wind up with a loss of $40,622.68.

This of course excludes special assessments and all the transaction costs associated with owning real estate: brokers' fees, conveyance tax, etc. It also ignores the tax effect on dividends. But dividends and capital gains tax rates are currently the same (and can't be predicted in the future). The only further benefit from owning is the $250,000/$500,000 tax exemption. But it is doubtful that $410,625.79, which is the absolute value of the difference between the owner's loss and the renter's gain.

Guys, it's indisputable: renting is FAR better in the long-term than buying. All the figures and assumptions I used are real and verifiable. Do your own calculations: rent for the price of your mortgage payment, invest the down payment and maintenance and property taxes in the S&P 500 at the real rate of increase of 8.0%, increase your property value, rent, taxes and maintenance payments at the real rate of 0.7%, deduct the mortgage interest paid, and you will see IT IS ALWAYS MORE BENEFICIAL TO RENT.

Do your own calcs, or criticize the model. I'm waiting....

exbreezy, your assumptions are wrong. they serve the purpose of your example. alos, this is at least the second time you have posted the same gibberish.

Marco, ExB - obviously a pseudonym for someone else as it's a new name stealing an old post - has taken a post of mine from about 2 years ago. And I stand by it: the premise is if you look at owner-occupied housing as an "investment," which it is not.

Indeed, let's say you spend $4,000 a month to rent an apartment that would sell for $1 million. Your rent goes up 10%, your apartment goes down 10%. That translates into a $4,800 a year net rent increase, and a $100,000 loss on your "investment."

I saw alcove studios listed at 382 cpw for $1850-1900 which is really good but the owner refuses to pay the fee.

Indeed, let's say you spend $4,170 a month to rent an apartment that would sell for $1,000,000. Your rent goes up 10%, your apartment goes up 10%. That translates into a $5,000 a year net rent increase, and owning a $1,100,000 apartment.

julia, pay the fee and stay a while. you'll enjoy whole foods and central park. too bad you didn't buy there 10 years ago. while everywhere was cheaper then, this area was a screaming bargain with its tired location and hyper low taxes. Now the area is not so tired but the property taxes are still the lowest anywhere near South 96th St. Renters taking a free month or two and not paying a fee are just taking a save now, pay later approach to their housing. They are guaranteed to be charged a lot more in the effective rate the second year, or if they don't pay up, they pay to move again.

julia, my point about the taxes being low was not just a sour grapes notion. If your landlord's costs are hyper low, don't you think that puts less pressure to raise rents down the road? And if you are a good tenant, they'll want to keep you by not raising the rent.

JimHones,

I know many on here have issues with you, but I appreciate your insights 'from the field', and your current candidness. In the winter you were telling many on here that incentives were decreasing and demand increasing, were lambasted, and were right. Now you are saying that the more recent, more aggressive increases have not stuck, and thus demand decrease, which will likely lead to concessions/decreases. It will be interesting to see how those who lambasted you when your insights were against their desires now treat your views which are in line with their thinking.

"your apartment goes up 10%."

HAHAHAHAHA!

stevejhx, I've laid out cash for a condo. My total cash outlay has been less than I would have paid in free market rents over the twelve years of ownership, but those outlays were front-end loaded, and I own outright. If that money was instead invested in stock indexes, it would not have grown any. Now I save plenty compared to the cost of rent. I save every month and that economic value is not taxable. If I discard the equity, I am still ahead. Do you see my point? You can calculate that I am losing money on a depreciating asset, but it is all house money.

"house money" as in gambling winnings

exbreezy's gibberish is a verbatim post originally by stevejhx

exbreezy refers to himself in the third person!

Yes it is - and within the context of the one-prevalent line of thought that investing in a home was a way to "make money." It is not; it is a way to capitalize rent.

To the broker from RBNY - Citi's report is not, as I understand it, JUST with bldgs they rep. They sample a set number of bldgs, which may differ from yours, but it does include fee and no fee bldgs. That is what I remember from some article or another.

A lot of apartments in the city are going to be vacant because of the growing Bed Bug epidemic!!!!!! I already know a handful of people and a family with kids who are leaving the city to move to the suburbs based on their fear of the Bed Bug epidemic. Others say they are afraid to buy Real Estate in Manhattan for fear it will totally lose it's value of the building becomes part of the bed bug epidemic.
How far is this spread going to go and what toll will it really cost?

i mean, i wouldn't entirely rule out bedbug fears as a new factor.

but i think a bigger factor in manhattan inventory rising a bit is that the more recent, more aggressive rent increases (and/or incentive rollbacks) may very well have stopped the wave of outer borough and NJ renters from deciding to make the leap into manhattan. that's a population that generally could add to manhattan demand despite no net new job creation in the metro area.

and if that segment of people loses the sense of, "hey, i might really be able to afford manhattan," and instead gets sticker shock just from browsing online and seeing the asking prices, then *voila* you could see inventory rising in fairly short order, it seems to me.

now, this is all just part of an equilibrium process where manhattan and the boroughs continually trade residents back and forth whose budgets are just on the edge of manhattan affordability. so i don't pretend that this factor constitutes anything more than a short-term trend (say, during the next 6 months of the cold-weather period). but it seems a decent explanation for what could be going on, if indeed the higher inventory stats can be believed.

"sowherelse made a perfectly valid point: as soon as prices jump, vacancies rise. in other words, the strong demand that the real estate industry trumpeted is a fluke."

Bingo.

sideline is spot-on (not surprising) as is evnyc. The OP completely missed what the real takeaway here is (again, not surprising): "The vacancy rate has been declining every month since November. In July, it reached its lowest point in nearly three years." That's a bit scary, and it's both normal and good that it's increasing again, though it's only one data point, as has been noted. It's pretty amusing that Crain's cites this as a "major" reversal however. Seems like all major publications have some shoddy RE reporting these days.

> Seems like all major publications have some shoddy RE reporting these days.

it's because I'm retired from newspapering (*grin*)

ali

Ali! Come back, we need you! Actually, never mind, just post here!

1.1% vacancy rate? The tumbleweeds are going to take over any day now!

If the sales numbers blipped up everyone would be screaming one month does not a trend make... Same thing should apply to rents. Too soon to declare a reversal.