By Diana Olick, CNBC Real Estate Reporter NEW YORK ( CNBC) --The still faltering housing recovery, tight credit, lackluster employment growth and overall weak consumer confidence has kept demand for apartments high, despite historic housing affordability. That, plus a shortage of supply, means rents are going higher, increasing at their fastest pace since the fall of 2007, according to Reis Inc., which expects rent growth to accelerate even more as vacancies tighten. How tight are supplies? Less than five percent of the national apartment supply was vacant this past spring, according to Reis. That's only the third time that's happened in over thirty years. "The target renter demographic (younger Americans) has seen what's happened in home buying, and the ease of just writing a monthly check is compelling," says analyst Alexander Goldfarb at Sandler O'Neill.
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"A shift in improving investor sentiment across the office sector is really a function of the fact that apartments are sort of yesterday's story. They're overbought," warns Roschelle. Analysts at Reis also warn that supply in the apartment sector is coming fast. They estimate 70,000 units to come online in 2012, double the rate of 2011, and around 150,000-200,000 in 2013. "While this kind of supply growth need not push apartment fundamentals back into contractionary territory, it is important for individual investors to consider how greater competition in specific submarkets caused by the proliferation of apartment rentals will impact their property's or portfolio's performance," notes the Reis report. --Written by Diana Olick at CNBC