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In the past week, Axiometrics and MPF Research put out reports showing the apartment market still pushing historical highs in rents and occupancies. The most recent data from New York-based research firm Reis, however, displays something entirely different—an apartment market that's starting to show slight signs of weakness after a strong half-decade run.

“It appears as if the market finally reached its inflection point during the third quarter,” says Reis senior economist and director of research Ryan Severino. “Although the national vacancy increase of 10 basis points was slight, it was actually a slight acceleration of a trend that began during the second quarter of 2014. That’s when vacancy technically started rising. While not a steady upward trend (vacancy declined slightly earlier this year), vacancy continues to generally inch higher as construction outpaces net absorption.”

Severino is particularly concerned that the rise in vacancy, which ticked up to 4.3%, occurred without the “deluge” of new apartments expected to hit the market. “When that occurs, likely in the next few quarters, vacancy increases are sure to accelerate, because the market will not be able to digest that much new product,” he says.

In fact, Severino thinks vacancy would be even higher now if weather hadn’t delayed construction starts earlier in the year. For the quarter, construction outpaced absorption by roughly 5,000 units: 34,135 units were absorbed and 40,795 units were delivered, which fell from 51,442 last quarter. Year‐to‐date completions total roughly 127,000 units, which is on par with 2014's total.

“Although vacancy has appeared to skip off of the bottom, [it's] been largely unchanged over the last two years as supply and demand have been roughly in balance,” Severino says. “However, slowly but surely, construction is overtaking net absorption by a wider and wider margin and is nudging the national vacancy rate slightly higher. Although vacancy is unchanged over the last year, this is largely due to a weather‐induced pullback in construction during the first quarter of 2015. Without that, vacancy would likely be even higher now.”

But Severino says demand won’t disappear. “Given favorable demographics, demand is not likely to implode in the coming years,” he says. “The number of 20‐ to 29‐year‐olds, which still constitute the bulk of the prime rental cohort, isn't projected to peak until 2018.  

"Although net absorption is unlikely to return to the robust levels from 2010 and 2011, it should remain stout for at least the next few years.”  

But as vacancy ticks up, rent growth remains strong for now. Asking rents grew 1.3% sequentially in the third quarter and 4.1% year over year. Effective rents also rose 1.3% sequentially, for a 12‐month change of 4.2%.

“This [growth] is a marked acceleration from the apartment market’s performance in recent years and, to give this some proper context, the last time asking and effective rents grew in excess of 4% during a calendar year was back in 2007,” Severino says. “Tight market conditions, coupled with slightly increasing household income, has provided landlords with the leverage they've needed to push rents in recent quarters.”

The question is, will this strong rent growth continue as new supply is delivered and vacancies increase?   

“Tens of thousands more units should hit the market during the usually slow fourth quarter,” Severino says. “That increases the probability that vacancy will continue to edge higher by the end of this year.”

But Severino thinks demand will keep vacancy in check now. That, of course, means vacancy, while edging upward, will stay at these historically low levels.  

“Still‐low vacancy rates, coupled with new properties coming on line with above‐average rents, should keep asking- and effective-rent growth around 4% for 2015, which would be the best calendar‐year performance since 2007,” Severino says.