The first half of the year, the economy progressed at a weak pace—0.4 percent in the first quarter and 1.3 percent in the second. Real estate markets mirrored this trend, with soft residential sales and slowing commercial fundamentals.

However, amidst the slowdown, one area remained positive—apartment properties. With household formation beginning to advance, demand for rental properties has been rising, accompanied by rising rents and declining vacancies.

This fact is attracting the attention of home buyers as well. The median home price in July 2011 was $174,000, down 4.4 percent from the same month a year ago. In addition to declining prices, buyers are finding an environment of historically low interest rates and high affordability. Based on the latest REALTORS® Confidence Index survey, 18 percent of homes were purchased for investment purposes.

More interestingly, the market is also attracting a number of first-time buyers. In July of this year, 4.1 percent of first-time buyers purchased a home for investment. The figure is in line with the average for the year, which stands at 4.2 percent, but it is higher than the average for 2010, which was 3.6 percent. With apartment rents expected to rise 2.5 percent in 2011 and 3.2 percent in 2012, homes purchased for investment reasons will likely continue to attract buyers.

George Ratiu, Research Economist

George Ratiu, Research Economist, writes regular economic columns and conducts research in the areas of commercial real estate, international investments, mortgage performance and foreclosures. He produces NAR’s Commercial Real Estate Outlook and manages quantitative surveys, including the Commercial Real Estate Quarterly Market Survey.