It's unlikely that this is a seasonal softening, as the third quarter tends to be one of the tightest quarters of the year in terms of rental housing. We can expect further softening during the fourth and first quarters coming up.
Five percent is what the report's original author, Gordon Von Stroh, used to call "the equilibirum rate," since it's the rate at which you wouldn't say that the market is either tight or soft. This is a change from most quarters in the last two years, though. One would certainly say that a vacancy rate of 3.5 percent is indeed a tight market, as was clearly the case last year. There does appear to be real softening in the market right now, though:
Note that the third quarter's rate of 5 percent was the highest rate recorded in six quarters.
I like to compare the vacancy rate to the unemployment rate as well, since there has historically been a connection between the two. Naturally, a hot job market tends to lead to a tight rental market since more people can afford to go out and found a new rental household without the need for roommates. Thus, more households are created and more units demanded. We can see the two curves move together in most cases.
The metro Denver vacancy rate rarely falls below 4 percent. Whether or not the current tight market can be sustained remains to be seen, however. As we'll see in other data, median household income growth in Denver has not been robust in recent years, and this will tend to put a damper on multifamily demand as people take on roommates or share quarters with other families.