According to new research by the National Association of Realtors, U.S. apartment demand that has surged during the pandemic continued to soar to a decade-high level as of 2021 Q3, with net absorption of nearly a million units (932,910) since 2020 Q2 and nearly a quarter of a million units in the past 12 months as of 2021 Q3. The vacancy rate has fallen to a decade low of 4.5%, and the asking rent has soared to a historic high of 10.5% as well.
NAR further states that demand for apartments has soared amid strong price growth, with double-digit price growth in the median single-family existing-home sales price in the second quarter in 94% of 183 metro areas. In the western half of the country, owning has become unaffordable compared to renting. For example, in San Jose, the monthly mortgage is $6,400 which is 2.4 times the monthly rent of $2,750. Most of the affordable metro areas for owning a home are in the eastern half of the country (Midwest, South, Northeast regions).
Class A still accounted for the larger share of net new absorptions, but the share of Class A apartments within the total 12-month absorption has drastically declined since the pandemic from 72% in 2020 Q1 to 48% as of 2021 Q3. Meanwhile, the share of Class B rose from 30% to 37% over the same period, as well as the share of Class C going from negative net absorption to positive net absorption of 15%.
The current mix of apartment units under construction has also shifted towards Class B, with the share increasing to 42% as of 2021 Q3 from 36% in 2020 Q1. A total of 644,690 units are under construction, so Class B units amount to 268,748 units. This shift in construction towards Class B units will lead to a more affordable supply of new units.
Class A apartments tend to be located in the central business districts, so the declining share of Class A apartments is indicative of the shift toward suburban markets and away from the central business district with people working from home. Another reason for the rising share of Class B apartments could be the cost of rent, as Class B units are cheaper than Class A units by about $500. Renters tended to look for more affordable apartments, given the risk of unemployment during the pandemic period.