Effect of “Shadow Market” on Multi-Family Rentals

Was reading through the 2008 National Apartment Report from Marcus & Millichap and was struck by how many times they reference the “shadow market” of rentals and their affect on the multi-family rental industry.   The “shadow market” generally refers to condos and single-family homes that were originally intended to be sold but have been turned into rentals instead.  And in the 66 page report, there are 37 references to the shadow market. 

For the most part, the report predicts that the competition apartments might face from single-family homes and condos will be offset by the growth of the renter pool due to the housing market.  And they are predicting that because of the increased renter demand, that vacancy rates will drop and rents will go up. 

 I’ve attached the report for anyone who might be interested….lots of interesting info.  And here are some highlights from the region my team covers:

Las Vegas: “The surplus of homes purchased by investors will force apartment owners to compete with shadow-rental stock; however, tighter residential lending standards and uncertainty in the housing market will encourage renters to delay home purchases, supporting demand.”

Phoenix:  ”The shadow-rental market will cause metrowide vacancy to push higher in the near term, and concessions will likely return closer to historical norms. The renter pool is expected to continue to expand however, as tighter residential mortgage requirements and the resetting of adjustable-rate mortgages create a climate where current renters are hesitant to leap into the for-sale market.”

Sacramento: “Further strengthening renter demand is the housing market, which may not hit bottom until 2009 or later and is discouraging current renters from making home purchases.”

marcusmillichap_2008_nationalaptreport.pdf