Hopes that the downturn in housing would bring back former homeowners as renters isn't playing out thought.

According to REIS Inc., a New York real estate research firm, the vacancy rate for the top 79 U.S. markets jumped to an average 7.2%, a full percentage point increase over the past two quarters and the highest level since the Q1 2004.

Surprising, is the steep increase in vacancies came even as apartment owners reduced rents. Gross potential rents (GPR) fell .6% this year alone. While this number may not seem large, it's the largest drop since REIS began its count in 1999. Effective rents, GPR - concessions, fell in Q1 2009 to an average collected rent of $984 per unit.

What this shows is apartment owners are willing to drop rents before they offer any incentives. And the future holds little hope for a reversal. Reis is forecasting rent declines of as much as 2% for the year and a vacancy rate that tops out at about 8%, the highest level since the late 1980s.

Once thought to be immune from the recession, apartment and multifamily vacancies are pushing more owners into delinquency. Looking at CMBS default and delinquency rates, the multifamily sector posted the highest delinquency rate in February, reaching 3.3% from 3% in January, according to Standard & Poor's.

$3.2 billion in multifamily debt was delinquent in Q1 2009, up from about $1.5 billion in the Q3 2008. The delinquency rate on multifamily loans held or insured by Fannie Mae rose 88% in the fourth quarter to 0.3%.

Since Q3 2006, apartment vacancies have trended up. Thoughts are, over capacity, due in part from failed condo projects converted to rentals, and the supply of foreclosed homes competing for renters. Adding fuel to the fire, a deteriorating job market that has accelerated the pace of vacancies and is putting downward pressure on gross potential rents.

Markets that are most impacted seem to be those markets that had a serious housing problem to begin with. Rents fell at least 1.5% across all Southern California markets, and 1.3% in Fort Lauderdale, Fla. Most Southern and Midwestern markets also fared poorly.

However all is not lost. There were signs of improving or stabilizing in markets that were among the first to enter the downturn. Some markets in Florida, St. Petersburg and Miami for example, have seen rent increases by .07% and .04% respectively.