"Too many new apartments and too few renters. Ultimately, it's that simple," Richard Zigler, O'Connor's research director, tells GlobeSt.com. Nearly 19,000 units are under construction, 7,000 more than the final count for 2003. "Historic levels of construction continue to outpace demand," he says. And, 90% of the deliveries last year, and most likely this year, are high end.

According to Zigler's research, multifamily absorption has been trending downward for three years, but the 480,000-unit inventory didn't dip into the red until last year. If Greater Houston succeeds in adding 30,000 jobs, at least 16,000 units would need to be absorbed this year to keep the market occupancy at its current 89.4%, according to Zigler. He says the more likely scenario is 4,000 units to 5,000 units will be absorbed, driving occupancy to 87% citywide. Class A product, which accounts for 24% of the inventory, is projected to fall from 85.4% to 80% by year's end.

On the rent side of the equation, the average monthly fee increased a penny to 78 cents per sf. The exception is the class A inventory, which decreased about a penny to end the year at $1.04 per sf, on the average. The CBD, with a monthly rate of $1.40 per sf, has the highest apartment rents in the region.