A chart on rental vacancies from Ries via Calculated Risk

Apartment Vacancy Rate

So what do we see directly: Rental vacancies are falling. The rental market is tightening up. We should expect higher rents and thus higher inflation in the near future.

However, the story does not end there. Household formation in incredibly low. There are maybe 2 million “missing households.” On top of that both single family and multifamily (apartment) complex completions are set to tie record lows for 2011.

There is a huge demand bulge waiting in the wings. There is no supply coming on line on absorb it. Rental vacancies are already falling.

This is setting up to be the story of 2012 and it is setting up to be a doozy. Inflation creeping higher despite the Feds best efforts to tamp it down. A possible explosion in the growth rate if we get a virtuous cycle of more construction job leading to more household formation, leading to more construction jobs.

Also, watch out for huge geographic shifts. With rents skyrocketing in the North East Corridor will the New South become the place of choice for young professional? A few a fundamentals are there. Not enough to make a prediction, but a few.