Low Confidence Suggests Apartments Slower to Recover
While single-family housing has been showing recent signs of rebounding, the apartment sector is on a slower trajectory for recovery, according to NAHB’s latest Multifamily Market Index (MMI), which was released late last month.
The MMI for this year’s second quarter indicated a downward movement across the rental market. Market-rate apartment starts registered 16.7 on the index — roughly the same level as the past three quarters but less than half the level of the same quarter of last year. Lower-rent apartments fell to 21.3 — a dozen points lower than the year-earlier level.
Expectations for lower-rent apartment starts over the next six months showed some improvement, rising to 38.2 in this year’s second quarter, up from 33.3 in the same quarter of 2008.
The condo index, which was at a record low of 10 for the second quarter of last year, rose to 15 during this year’s April-to-June period. Expectations for condo starts over the coming six months rose modestly to a level of 27.1, up from 21.0 in the second quarter of 2008.
“The continued contraction in multifamily starts is exacerbated by the ‘shadow market’ of empty foreclosed single-family homes and condos that are being rented at below-market rates by investor-owners,” said NAHB Chief Economist David Crowe. “Lenders see the high apartment vacancy rates and vacant condo inventory, and step away from backing any new production.”
Increased vacancies and slower absorptions confirm the current market assessment of the builders and developers who were surveyed for the index.
The second quarter apartment vacancy rate of 8.1% was 1.3 percentage points higher than a year earlier. Only 36% of new units were reported being rented within 60 days in this year’s second quarter, compared to 54% for the same period of 2008.
Demand for apartments fell in the second quarter along with household formations and job creation. For higher-end apartments, second-quarter demand slipped seven points from a year earlier, to 27.1
For full survey results, click here.
NAHB’s Multifamily Market Indexes are derived from quarterly surveys of multifamily builders and developers whose responses are reported on a scale of 0 to 100, with any number over 50 indicating more positive than negative responses.
The latest survey also included a series of special questions on condo sales. Among the findings:
- While 41% of those surveyed reported no change in their firm’s sales cancellation rate as compared with last year’s second quarter, 38% said cancellations were running higher or substantially higher and only 21% said they were lower.
- Nearly three quarters of the cancelled sales were to individual buyers and a smaller portion (19%) to individual investors. Fewer than one-in-10 cancelled sales were to a corporate or large investor buyer.
- Just over half of the builders report that they had dropped their condo prices and the average reduction was 17%.
- Other top marketing incentives included optional items at no cost, paying for closing costs or fees and absorbing financing points.
“The depressed current level and six-month expectations for multifamily construction are likely to result in supply shortages in rental apartments one to two years from now when the economy recovers,” said Crowe.
For further information, e-mail Ann Marie Moriarty at NAHB, or call her at 800-368-5242 x8350.