by Calculated Risk on 11/18/2009 11:25:00 AM

From the BLS report on the Consumer Price Index this morning:

The rent index decreased 0.1 percent, the index for owners' equivalent rent [OER] was unchanged ...

The rent index decreased at a -1.3% annualized rate, and OER declined in three of four ranges (only the Northeast Urban Region saw an increase - see Cleveland Fed).

The rent index and OER will probably continue to fall for some time, keeping CPI and core CPI low.

Most of the reports of falling rents are focused on the coasts, but here is a report from MN Reader in Minneapolis:

The Minneapolis rental market was OK through the end of July. It has deteriorated sharply since then. Internal apartment industry figures show an 8.0% physical vacancy rate as of 8/31/09. The economic vacancy rate, which includes free rent offers, etc, was 11.8% as of that same date. Both figures have gone up significantly since then. All landlords in the market are fighting desperately for residents. Effective asking rents are dropping rapidly.

The vacancy losses seem to be caused by (1) home buying using the $8,000 tax credit; (2) job losses/cutbacks among existing residents; and (3) lack of new jobs for residents who would have rented. Unlike the coasts, there is only a small pool of permanent renters in Minneapolis. Most residents will eventually buy — it is only a question of the rate at which they depart. That rate has definitely picked up this year. [A large part] of the rental market is recent college graduates who rent an apartment after they get their first career job. That hiring and renting has not happened this year.

One difference between Minneapolis and warmer climates is that the rental market is extremely seasonal here. There is very little rental traffic during the winter months. Typically, our movements in and out follow a bell-shaped curve, peaking in the summer months. While in-bound traffic drops in the cold months, the out-bound traffic also typically drops as well. The drop off in out-bound traffic did not occur this year. Resident move-outs stayed very high all fall, as people rushed to beat the 11/30th tax credit deadline. The timing of the scheduled end of the credit could not have been worse for us. The extension until the end of April/June means that the bleeding will go on all winter.