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Rentals on the Rise as Condo Market Settles Down
After accounting for nearly half of all multifamily housing units produced in 2005, condominium starts are trending down to more sustainable levels, according to the housing experts who participated in an NAHB press teleconference on Aug. 23.
Meanwhile, the rental apartment market has emerged from a five-year slump and is currently in the midst of a broad-based recovery.
“Condos have gone from a ‘white-hot’ market to ‘red-hot’ to normal,” said Leonard Wood, director of Marietta, Ga.-based Wood Partners, LLC, and chairman of NAHB’s Multifamily Leadership Board. “Now that investors and speculators have pulled out, the market is beginning to stabilize at levels that are sustainable over the longer-term.”
At their peak, condo starts last year accounted for a 48% share of the 350,000 multifamily units that were produced, up from 20% of the multifamily market in 2000.
“My forecast has condo starts dropping through the end of 2007, before stabilizing at about 35%” said NAHB Chief Economist David Seiders. He noted that total multifamily starts have been unusually stable and non-cyclical for almost a decade, but that the change in the composition of the starts — with condos grabbing the lion’s share while the percentage of market-rate rental starts slipped precipitously — has been extraordinary over the past five years.
Seiders’ latest short-term forecast shows some erosion in total multifamily starts this year and a further decline to about 325,000 units in 2007, reflecting a contraction in the overall housing market.
Although sales of both new and existing condos have slowed, most of the fall-off in demand has been among investors and speculators, said Bruce Menin, CEO of Crescent Heights, one of the largest condo development companies in the country.
“Condos that are well-priced and well-located are still doing well with people who are interested in them as their primary home rather than strictly as an investment,” Menin said. Menin also said that he doesn’t necessarily see the slowdown in condo price appreciation as a negative.
“Because the prices had gotten so high so fast, the price drop-off we are seeing now is relatively marginal,” Menin said, adding that the slower pace of both sales and price appreciation will help stabilize condo prices and restore equilibrium in the market.
In the meantime, the rental market — which had been in the doldrums for most of the last five years — is in the midst of a solid comeback. According to Seiders, vacancy rates in rental apartment buildings with five or more units are down considerably from record highs several years ago and absorption rates for newly completed rental apartments are on the rise.
“Rents are up and the tight supply of rental units across the country is creating good opportunities for apartment owners and developers in most markets,” said Wood, who also noted that the recent trend of converting rental apartment units to condos is over. “We’re more likely to see some planned condo projects being converted to rentals,” he said.
For an audio file of the teleconference, as well as a copy of a Powerpoint presentation by David Seiders, click here.
For more information, e-mail Ann Marie Moriarty at NAHB, or call her at 800-368-5242 x8350.
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