As home sales languish, apartment rentals are booming.

That means that finding an apartment in the Twin Cities is getting more difficult as vacancy rates continue their downward trajectory. In the Twin Cities metro area, the average vacancy rate during the second quarter was 2.4 percent, according to a new survey by Marquette Advisors, down from 5 percent last year and 3.1 percent during the first quarter.

The declines were particularly pronounced in downtown Minneapolis and St. Paul. In downtown Minneapolis, the rate fell from 6 percent during the second quarter of 2010 to 1.2 this year. In downtown St. Paul the rate fell even more steeply, from 7.1 percent in 2010 to 0.8 percent during the most recent quarter.

Marquette Vice President Brent Wittenberg attributes the declines to stronger job creation and to a reluctance to buy. With home prices still falling, many are nervous about how long it would take to recoup their investment.

Across the metro, demand and tightening inventory have caused rent prices to increase, but only modestly. The average rent was $921, up slightly from the first quarter when rents averaged $916. Compared with a year ago prices were up 2.1 percent.

Rentals are one of the few parts of the real estate industry that’s doing well these days. With would-be buyers renting, the supply of rentals is relatively tight because there’s been very little new construction over the past decade. That’s about to change. Thousands of rentals are slated to come online in the metro area over the next few years, leading some to wonder if the multifamily industry is going to be the next real estate bubble.

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