Economists' Outlook

Housing stats and analysis from NAR's research experts.

Rising Household Formation and Employment Boost Apartment Demand

Economic performance for the second quarter of this year was upwardly revised this past week by the Bureau of Economic Analysis. Real gross domestic product (GDP) totaled $16.3 trillion, an advance of 3.7 percent at an annual rate, up from the initial estimate of 2.3 percent.

Payroll employment continued rising, with 678,000 new employees having joined payrolls nationwide during the second quarter. The total number of new jobs in the first half of 2015 reached 1.3 million. Median weekly earnings of private employees—adjusted for inflation—rose by 2.1 percent in the second quarter of this year, a significant improvement compared to 2014. The unemployment rate declined from an average 5.6 percent in the first quarter 2015 to 5.4 percent in the second quarter.

Just as importantly, household formation trends continued upward. Looking at historical trends, household formation averaged 1.3 million every year over the 1958-2007 period. Between 2008 and 2013, the average number of new households dropped to 579,000 per year, underscoring the severity of the Great Recession and ensuing slow recovery. In 2014, net household formation jumped to 2.2 million, as employment growth encouraged more young people to strike it on their own. In the second quarter of 2015, household formation continued the upward trends with the addition of 480,000 new households.

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Demand for multifamily properties continued on an upward path. Renter occupied housing units totaled 42,9 million units in the second quarter of 2015, a 4.9 percent advance from the second quarter of 2015, based on U.S. Census Bureau data. National vacancy rates averaged 6.8 percent for rental housing during the second quarter, 70 basis points lower than the same period in 2014. Median rents for rental units averaged $803 in the second quarter of this year, 6.2 percent higher than the previous year.

Fundamentals in REALTORS® CRE markets moved in tandem with the broad markets during the second quarter 2015. Leasing volume during the second quarter rose 5.0 percent compared with the first quarter 2015. Leasing rate growth remained steady, rising 3.0 percent in the second quarter, compared with the 3.0 percent advance in the previous quarter. With rising new supply, apartments experienced availability increases, as the national average rose from 6.0 percent in the second quarter of 2014 to 6.6 percent in the second quarter of this year.

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Lease concessions in REALTORS® CRE markets declined 8.0 percent.  Tenant improvement (TI) allowances averaged $10 per square foot per year nationally. Apartments posted the lowest TI rates—$3 per square foot per year.

To access the Commercial Real Estate Outlook: 2015.Q3 report visit

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