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Index Shows Favorable Six-Month Outlook for Apartments and Condos

Condos continued to lead the multifamily market in the third quarter of 2004, with the for-sale supply index up almost four points from the same quarter a year earlier, rising 53.5 to 56.9 on the index. Builders participating in the MMI survey said they expect that number to stay above 50 for at least the next six months.

The MMI is based on a quarterly, nationwide survey of multifamily builders and property owners who are asked a series of questions about current market conditions as well as their expectations for the next six months. Survey answers are assigned numerical values to calculate two separate indexes, one tracking demand and the other tracking supply. The scale is from one to 100, with a rating of 50 generally indicating that the number of positive responses is about the same as the number of negative responses.

All classes of rental apartments showed gains on the demand index in the third quarter, with the biggest increase reported for low-rent Class C apartments, which jumped 10 points above their year-earlier rating to 53.8. Demand for luxury units rose 3.3 points from last year’s third quarter, while demand for average market-rate communities rose about nine points.

“This quarter’s MMI results confirm that the turnaround we saw beginning during the first part of 2004 has solidified,” said NAHB President Bobby Rayburn. “With the economy generating additional jobs, new households are forming, and that means that there’s a greater demand for rental housing.”

The index tracking the number of rental apartments available for rent continued its downward trend, registering a six-point drop from 63.7 to 57.7 from the third quarter of 2003 to the third quarter of 2004. At the same time, the volume of calls from prospective renters saw a healthy increase, rising nearly 15 points on the index to 52.9, up from 38.2 a year earlier.

Condos are still the major story in the multifamily housing market, according to the latest MMI. Even with the current supply index up, survey respondents said they expect even higher production six months from now.

“Condos have great appeal to those who want the benefits of apartment living but who also want to buy a home during this time of low interest rates,” said NAHB Chief Economist David Seiders. “But, with interest rates starting to move back up, we are also starting to see stabilization in the rental apartment market.”

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