A surge in homebuilding and low mortgage interest rates continued to push Utah apartment vacancies higher in this year's second quarter.
For the three months ended June 30, apartment vacancies in the Salt Lake City-Ogden region reached 8.3 percent. That is up from 6.7 percent during the same quarter in 2003, but down slightly from 8.5 percent in this year's first quarter, according to a report by Phoenix-based Hendricks & Partners.
The Ogden area posted the highest number of empty apartment units in the second quarter, at 10.3 percent. Downtown and east Salt Lake City had the second highest vacancies at 8.6 percent.
In the 12 months ended June 30, average rents fell 1.6 percent to $643 in the Salt Lake City-Ogden area, down from $654 the prior year.
Rents actually rose in downtown and east Salt Lake areas, as well as Rose Park and West Valley City. However, "many owners who have raised rents still offered concessions, such as one month free rent," the report said.
L. Paul Smith, executive director of the Utah Apartment Association, blames a combination of slow job growth and low interest rates on higher vacancies.
"When job growth is strong, apartment rentals are strong," Smith said. "The renters that were going to buy have already bought. We've kind of seen the end of the exodus of renters, but for vacancies to go down we need to see some job creation."
Smith agreed that concessions remain common but are starting to tighten.
Apartment owners had anticipated that rising interest rates would keep tenants from purchasing homes.
But interest rates have continued at sustained low levels. For the week ended Sept. 30, a 30-year fixed-rate mortgage averaged 5.72 percent, down from 5.98 percent during the same week a year ago, according to Freddie Mac's Primary Market Mortgage Survey.
In addition, Utah's traditionally high foreclosure rate showed considerable improvement in second quarter, falling to 1.56 percent, down from 2.03 percent during the same quarter in 2003.
"Before the interest rates took a big drop the household income to afford an entry-level home was about $40,000 a year," said Kent Nelson, associate partner for Hendricks & Partners' Salt Lake office. "Interest rates took a dive, and as a result anybody who's making $35,000 a year can afford an entry-level home. That pool of renters all went out and bought homes."
But Nelson believes the 19- to 30-year-old group — which constitutes 90 percent of those who live in apartments — will continue to expand.
"As it continues to grow, the demand for apartments will continue to grow," said Nelson, adding that no more than 1,500 new apartment units would be built this year.