Wednesday, August 3, 2016

Average rent in metro Denver hits new high as vacancies remain low

To the surprise of very few, the Denver Post reported last month that the average rent in metro Denver continues to rise. According to the Metro Denver Apartment Vacancy and Rent Survey, the average rent during the second quarter of 2016 was $1,371, which was up from teh first quarter's average rent of 1,315. The second quarter rent marks a new all-time high:

The increases in rental rates reflects ongoing low vacancy rates in the region. For the second quarter, the apartment vacancy rate in Metro Denver was 5.4 percent, which was down from the first quarter rate of 6.1 percent. During the second quarter 2015, the vacancy rate was 4.5 percent. Overall, we can see that, excluding a surge in vacancies during the fourth quarter of last year, the vacancy rate in metro Denver remains low, although not as low as what we frequently saw during the 1990s:

As the economy has slowly expanded in the wake of the 2007-2009 recession, apartment vacancies have tightened, and reached especially low levels in 2014. The market has loosened a bit since then, but vacancies remains generally low.

With the second quarter's all-time high of 1,371, the average rent is up 8.3 percent over the average rent a year earlier. The average rent was 1,254 during the second quarter of 2015.

While an increase in the average rent of 8.3 percent is substantial, it nevertheless shows a declining trend on rent growth. Rent growth peaked at an all-time high of 13.2 percent during the second quarter last year. Since then, the rent growth rate has fallen in each quarter. In other words, rents are growing, but the pace at which they are growing is slowing.
The boom in apartment rents is still going. Just not as strong as was the case in the previous two years. 

Adjusting for Inflation 

When looking at rents over time, it's always important to consider rents compared to the Consumer Price Index. While the graph (above) of nominal rents shows unabated growth since 2000, we see a different trend when adjusting for inflation. 

In inflation-adjusted terms, the average rent declined from 2001 to 2010. Only after 2010 did the average rent reach its former peak reached in 2001. Since 2010 though, the average rent has repeatedly been reaching new highs, even after adjusting for inflation. 

during 2001, the high was $1,108 in 2015 dollars. In recent quarter, that rate has been repeatedly topped, with 2016's second quarter rent coming in at 1,358 in 2015 dollars:

Year-over-year growth in inflation-adjusted rent is similar to that seen in the nominal rents. Over the past year, rent growth has been large, but has been gradually getting smaller. During the second quarter of this year, the inflation-adjusted average rent grew 7.1 percent, which is down from the second-quarter 2015 rate of 13.2 percent:

For now continued population growth and a generally solid economy continues to fuel demand for housing, and especially rentals. (See my recent article on the homeownership rate.) Neither the national economy nor the local economy are especially robust when compared to previous expansions, but as long as the Colorado economy is performing at least as well as the country overall, it looks like there will be ongoing demand for a place to live in Colorado.