The confluence of low interest rates and falling prices has made homeownership more affordable than in the days of the cave dwellers.
The money, however, remains on the Philadelphia rental-apartment market, whose performance, real estate investment-services firm Marcus & Millichap said, offers further evidence that "a sustainable recovery has taken hold."
Although a minimum household income of $49,000 is required to afford the monthly mortgage debt on a previously owned house at the region's median price — $206,600 in the first quarter of 2012 — high down-payment requirements and stricter lending rules are deterring prospective buyers.
The apartment-vacancy rate has returned to a normal level: 3.9 percent in the first quarter, down 2.6 percentage points since it peaked at the end of 2009, the firm said.
Demand for in-city residences pushed the Center City vacancy rate to a seven-year low, 4.1 percent. The rate is higher in South Jersey — 8.5 percent in Cherry Hill/Evesham/Medford — but even that is almost a percentage point lower than it was in the first three months of 2011.
This strong demand will continue, Marcus & Millichap said, predicting the vacancy rate regionwide would fall to 3.6 percent in the rest of the year.
That means property owners have been able to raise rents without much opposition from tenants. Average asking rents rose 0.2 percent in the first quarter from fourth quarter 2011, to $1,046 a month. Effective rents, minus concessions and allowances, rose 0.6 percent, to $1,004 a month.
Since first quarter 2011, asking rents have risen 1.9 percent, while effective rents have climbed 2.4 percent.
Marcus & Millichap anticipates that average asking rents will bump up 3.2 percent, to $1,077 per month, during the rest of the year, and that effective rents will surge 4 percent, to $1,038, during the same period.
Investor demand for rental apartments remains keen. In the last year, measured by dollar volume, institutions increased purchases threefold in the Philadelphia region.
A modest shortage of available properties persists, but owners are increasingly acting to take advantage of strong investor demand and compressing capitalization rates — the time it takes for a building to start paying for itself — triggering a gradual rise in sale listings.
The median price of properties sold in the last 12 months was $71,600 per unit. In the preceding 12 months, it was $80,400 per unit.
With greater transparency on values and a narrow bid-ask spread, investors will continue to take advantage of strengthening property operations, limited near-term construction, and low interest rates to execute transactions in the months ahead, Marcus & Millichap said.
How limited is multifamily construction?
There have been few additions to the local market-rate rental inventory in the last 12 months. Since the first quarter of 2011, just the 97-unit 600 on Broad in Center City has been completed.
Multifamily developers are becoming more confident, the firm said, with 6,500 market-rate units planned for the region — an increase from 4,100 rentals six months ago.
But only a few projects are proceeding, as roughly 1,700 units of for-sale and rental multifamily housing received permits in the last 12 months, a decrease of 8 percent from the preceding year.
Additions to the pipeline of planned projects include the 612-unit Renaissance Walk in Pennsauken and 159 units in the Bordentown Transit Village project, to be completed in 2014.
Marcus & Millichap said developers are on track to add 1,000 market-rate rentals in the region this year, which would be the highest annual output in four years."