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Oversupply Slows Multifamily Rental and Condo Markets
 Facing a structural problem, multifamily rental and condominium markets will be slow until they begin to recover in late 2010 or early 2011, analyst Ron Witten, of Witten Advisors, told NAHB’s Fall Construction Forecast Conference last week.
The structural problem, Witten said, “is we have too many structures.”
However, Witten noted that supply is getting “thinner and thinner,” particularly as apartment absorption continues to grow in markets with relatively healthy employment. By the end of 2010, he said, “the glut will be behind us.”
Until then, multifamily housing will face a myriad of obstacles.
“What happens depends on the depth of the recession and how buoyant the recovery is,” he said. “Location, location, location relates to economics as well as real estate.”
The condo market will eventually be rejuvenated by baby boomers and empty nesters looking to downsize, Witten said. But this won’t happen soon, with condo construction dipping below 50,000 units next year — one-third of what was produced during the peak of the boom in 2005 and 2006 when investors helped stimulate a buying frenzy and unsustainable price increases.
“Condominiums were the easiest place for investors to speculate,” he said, and many investors also found it easy to drop their pre-sale agreements as the downturn began to take hold.
Witten presented a mixed prognosis for multifamily rentals, with starts slowing by some 25% in the top rental markets in the country ― Houston, Dallas, Los Angeles, Atlanta and Austin, Texas.
Demand, he said, will lag behind overall supply next year, with rental production falling to the 1993 level of about 125,000 units.
Witten attributed the rental slowdown to a rise in construction costs combined with a freeze in multifamily financing that is just beginning to ease, although land prices have become more favorable. In addition, because production usually takes between 12 and 18 months to complete, many multifamily developers are reluctant to begin new projects in today’s volatile housing market and economy.
Witten did cite a current opportunity for multifamily developers who are willing to acquire “tired properties” located primarily in or close to major population centers with healthy employment. Those properties are marketable and financing is available, he said.
Photo by Morris Semiatin
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