Apartment builders continue to feverishly build to capitalize on rising rental rates and favorable demographics, but construction is reaching danger levels in some markets.
  
Uniquely Competitive Environment
With homeownership costs at the lowest levels in decades and a surge in vacant single-family rentals, renters have plenty of options these days.

• The average monthly cost of homeownership is currently equal to or below the average rental rate in most markets.
• The move-out to purchase ratio (as reported by the apartment REITs) has risen to 14% from 11% in 2010.

The chart below compares the multifamily permit activity over the last 12 months to the 22-year average for the top 22 apartment markets.

In light of higher foreclosure costs and delays in judicial states, the FHFA (the regulatory body for Fannie Mae and Freddie Mac) is proposing additional fees on loans made in judicial foreclosure states. The FHFA has selected Connecticut, Florida, Illinois, New Jersey, and New York (all judicial states) for the new fees, as the total carrying cost of loans in these states far exceed the national average. The fee would be charged to lenders as a one time upfront fee for every loan Fannie or Freddie acquires, resulting in homeowners paying a higher effective mortgage payment.

What is really behind the sharp drop in inventory levels? The non-judicial foreclosure process used in most Western markets has allowed lenders to efficiently clear the distress, while at the same time facilitating strong investor activity and a home price recovery. Ironically, the judicial foreclosure process, which was designed to protect homeowners, is delaying the recovery in those markets.

• Markets with the strongest price appreciation are in non-judicial-foreclosure states.