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Multifamily Market Continues to Gain Ground
The multifamily sector of the housing market performed well in the first quarter of 2005 and is expected to continue to improve, according to the latest Multifamily Market Index (MMI), which was released last week by NAHB.
Compared to last year’s first quarter, multifamily starts were up in all sectors, including for-sale, affordable rentals and market-rate rentals. Occupancy levels also increased in every class of rental apartment as did calls from prospective renters, asking rents and effective rents.
In additional positive news for the multifamily market, rental vacancies nationwide dropped from 8.5% in the fourth quarter of 2004 to 7.8% in this year’s first quarter.
“The appeal of urban areas where people can live, work and play — while escaping the drudgery of a long commute — is really benefiting the multifamily housing market,” said Ron Terwilliger, chairman and chief executive officer of Trammell Crow Residential and chair of NAHB’s Multifamily Leadership Board. “Whether they choose to rent or to buy, these consumers are looking for a specific lifestyle, and that bodes very well for the future of multifamily housing.”
The MMI is based on a quarterly, nationwide survey of multifamily builders and property owners who are asked questions about current market conditions as well as their expectations for the next six months. Any rating over 50 indicates more positive than negative responses for most components of the index.
The index gauging multifamily demand showed impressive gains in this year’s first quarter. Demand for Class B apartments — the mid-range rent category — rose to 60.6, a gain of more than 15 points over the same three-month period a year earlier. Demand for luxury units rose 13.5 points over the previous year’s first quarter, while demand for modestly-priced apartments rose 6.2 points. MMI survey respondents also indicated that they expect this positive trend to continue over the next six months.
The index tracking the number of apartments available for rent indicated continued improvements in vacancy rates and calls from prospective renters.
Among components of the index assessing the health of multifamily production, builders’ and owners’ assessment of market-rate apartment starts rose more than eight points to 57.2 in this year’s first quarter. Builders participating in the MMI survey said they expect even greater gains over the next six months.
Condos continued to be the strongest category in terms of current supply, at 66.9, but respondents expected starts to fall slightly over the next six months.
“The demographic factors — baby boomers who want second homes or smaller-scale, maintenance-free living, and the echo boomers just entering the work force — both serve to support a rising demand for condos and apartments,” said NAHB Chief Economist David Seiders. “With job growth back and the conversion of many rental apartment units into condos, we’re seeing both the rental and for-sale sides of the market come back toward a healthy balance of supply and demand,” he said.
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