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Condos Rocky, But Future Looks Brighter for Rentals
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David Seiders | The outlook for multifamily housing is mixed — a rocky future for condos and co-ops but somewhat brighter for rentals, economists at NAHB’s Fall Construction Forecast Conference said last week.
NAHB Chief Economist David Seiders said the near-term outlook for multifamily housing is tempered by rising vacancy levels for rental units and sharply increased numbers of vacant for-sale condo units ― which rose beyond 350,000 units nationwide earlier this year before beginning to drop in the second quarter.
Multifamily Construction on the Decline
Seiders said that multifamily starts have been falling since early last year and the number of multifamily units under construction has stabilized and will be declining soon. However, the inventory of completed condos is continuing to climb.
Because of the long construction timeline for condominium projects, many of those begun last year are just now coming into the market, exacerbating supply problems. The rapid drop in condo sales, Seiders said, will contribute to supply-demand imbalances and put downward pressure on prices in the coming year.
The best news for the multifamily sector ― particularly regarding rentals — is in the demographics, said Mark Obrinsky, chief economist for the National Multi Housing Council.
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Mark Obrinsky | While the overall multifamily vacancy rate has moved up recently, he said it remains better than the problematic post-2001 levels. In addition, rental absorption is improving and population and immigration levels also are trending up, which will give a boost to the rental market down the line.
Obrinsky said those in the “echo boom” ― the children of the baby boomers — are positioned to look for apartments. He also noted that 60% of recent immigrants in the 25-to-44 age range rent apartments and that the last two decades brought the largest influx of immigrants to the U.S. since World War II.
Drop in Real Rents Will Benefit Cash-Strapped Starter Households
Obrinsky also pointed out that real rents dropped precipitously in 2002 and have seen little increase since then. While not great news for apartment owners, this has made rentals a more attractive option than purchasing for many cash-strapped starter households.
Obrinsky said that 250,000 to 280,000 new units will be needed annually to meet the demand from the 2 million additional apartment renters coming through the pipeline between now and 2015 and to replace units lost from the rental stock.
This demand projection does not take into account condominium buyers, and Obrinsky said that the current trend of 300,000 completed multifamily units per year should ensure that the current oversupply of condos is absorbed over time.
Photos by Morris Semiatin
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