Builders, Owners See Brighter Rental Apartment Outlook

With demand for apartments strengthening, builder confidence in all sectors of the multifamily rental market surged in the fourth quarter of 2005, according to NAHB’s Multifamily Housing Market Index (MMI), which was released on Feb. 9. The survey also indicated expectations for some cooling down in the condominium market.

“A balanced and stable multifamily market offers a range of options for people who want to rent an apartment home, and for those who want to buy,” said Leonard Wood, chairman of NAHB’s Multifamily Leadership Board. “The reports of rising demand for rental apartments and increased apartment starts indicate that this sector of the housing market is moving toward better balance.”

In the quarterly MMI survey, multifamily builders and property owners from across the country are asked about current market conditions and their expectations for the next six months. The survey tracks assessments of both demand and supply on a scale of 1 to 100, with a rating of 50 indicating that positive and negative responses are evenly divided.

Demand was reported running substantially higher for all classes of apartments in last year’s final quarter compared to the same period a year earlier, with top-tier Class A units registering the biggest increase, of 17 points to 62.3 on the index. Demand for mid-range and lower-rent apartments rose to 59.5 and 58.0, respectively, a significant improvement over a year earlier.

“Our survey of builders indicates such positive trends should continue over the next six months,” said NAHB Chief Economist Dave Seiders. “For the first time since the beginning of 2005, builder expectations posted an above-60 reading for every class of apartment.”

Meanwhile, the index tracking the number of apartments available for rent continued on a downward trend, falling to 45.9 in the concluding three months of 2005, down 10.5 points from 56.4 in the fourth quarter of 2004.

On the supply side, builders and developers see a strong market for new apartments continuing over the coming six months, with lower-rent apartments rated the strongest, at 52.6.

For-sale multifamily supply skidded 10 points on the index between the fourth quarters of 2004 and 2005, dropping to 47.1.

On special survey questions about condo conversions, 15% of those responding reported that they had converted rental units to condominiums in 2005, more than twice as many as in 2003 and 2004. And 20% — up from 13% in 2003 and in 2004 — reported that they currently are building rental units with a view toward converting them to for-sale units in the next three to five years.

The majority of those surveyed do perceive a “moderate oversupply” in today’s condo market, but builders in the South were most likely to report a moderate or substantial shortage despite an apparent oversupply in South Florida. Midwestern builders reported an oversupply, which actually is an indication of a dearth of buyers, since relatively few condos are being built in the Midwest outside of major cities.

For further information, e-mail Ann Marie Moriarty at NAHB, or call her at 800-368-5242 x8350.

‘Marketing Multifamily Housing’ Available at BuilderBooks.com

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