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Multifamily to Lag in Slow, Lengthy Housing Recovery
The multifamily sector will lag behind all other housing segments in what is expected to be a slow, lengthy recovery, NAHB Chief Economist David Crowe said during a webinar on the state of multifamily housing last week.
During the Nov. 10 webinar, Crowe told participants not to believe the conventional wisdom surrounding past recoveries that “the steeper the fall, the quicker the rise” would hold true with this recovery. That’s not what we are seeing now, he said.
He said single-family starts have bottomed out, “but multifamily is not so fortunate.” He expected that multifamily starts would decline further before they began to improve.
For the past several months, multifamily starts have hovered at or near historic lows — below 100,000 units at a seasonally adjusted annual rate, Crowe said.
In addition, the share of those starts represented by condominiums has plummeted — from a peak of 52.6% in 2005 to the most current reading of 13.8%.
Crowe acknowledged that there has been a slight uptick in condo sales, but many of these sales are for distressed units or units that have been foreclosed. He said that between 600,000 and 700,000 units are for sale now — an 11-month supply at the current slow sales pace. Of those, 25,000 units have been on the market for at least a year.
Crowe predicted that the condo share of multifamily production will contract during the next few months and then, in early 2010,begin a slow, steady climb to a more historically normal 20% share of the multifamily market.
Crowe said that the multifamily rental segment is not faring much better. The vacancy rate for apartments with five or more units has risen to about 13% — well above average. In addition, rent increases have been extremely modest — and often offset by rent concessions or other enticements.
Crowe said that rental demand seems to be diminishing at a time when housing foreclosures are mounting because many of the households experiencing foreclosure are renting investor-owned condominiums or empty single-family homes, or moving in with their family or friends rather than into professionally-managed buildings.
Even with those rental market changes taking place, Crowe said that the Consumer Price Index (CPI) that reflects rent continues to remain at a higher level than the overall CPI.
While Crowe said that signs of improvement in the overall economy are beginning to appear — gross domestic product (GDP) for the third quarter rose after four consecutive quarters of decline and Wall Street appeared to be less anemic — housing is being weighed down by the large inventory of empty units; job losses at levels not seen since the Reagan administration; and incredibly tight financial conditions that make it difficult for builders, developers and consumers to borrow or restructure loans.
Crowe did offer a glimmer of hope for the multifamily market — the 83 million or more echo boomers who are just entering their prime household formation years. Not only are they a market segment as large if not larger than their baby boomer predecessors, they are generally seeking a more urban lifestyle, including smaller and more energy-efficient homes, apartments and condominiums.
Crowe said he expected the echo boomer to enter the market in full force during the next several years.
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