Confidence in Rental Apartment Market Soars
With occupancy and rental rates on the rise, the confidence of multifamily builders in the rental apartment market soared to a new high in this year’s first quarter, according to the latest NAHB/Fannie Mae Multifamily Housing Market Index (MMI).
On the flip side, builders were less enthusiastic about prospects for condominiums, which are in the midst of a cooldown.
The component of the MMI that tracks current demand saw both moderately priced (Class B) and lower-rent apartments (Class C) reaching their highest levels ever in the first quarter, with moderately priced units topping the index at 71.4, up from 60.6 at the same time last year and about 30 points higher than the last quarter of 2002, when the index was started.
Luxury rental apartments (Class A) gained 1.6 points to reach 61.6 in the first quarter, up slightly from 60.0 a year earlier.
"The rental market is very good right now," noted Leonard Wood, an apartment and condo builder from Atlanta and chairman of NAHB's Multifamily Leadership Board. "Over the past three years, there have been thousands of rental units converted and sold as condos and, at the same time, few new rental apartments were being built. This leaves us with a supply-constrained market while demand is growing."
According to NAHB Chief Economist David Seiders, the slowdown in the condo sector is due to serious affordability problems as well as a pullout by the investors who drove the market to unsustainable heights last year. "The changing supply-demand balance in the condo segment means that this component of the multifamily sector is slowing to a more sustainable level," Seiders said.
The MMI component that gauges the supply of market-rate rental apartments dropped to 54.6 during the first quarter of 2006, down from 57.2 at the same time last year.
With supply tightening and demand on the rise, the rent component of the index reached a record high of 73.1, up from 61.7 at the same time last year and almost 20 points higher than three years ago.
Meanwhile, the index tracking condo supply dipped sharply in the first quarter, falling to 37.0 from 66.9 at the same time last year. The index tracking builders' expectations for condo starts over the next six months also dropped, from 54.0 in the first quarter of 2005 to 46.0 during the same period of this year.
Indexes tracking builder expectations for all classes of rental apartments all moved higher — and all were above 50, the level at which the number of positive responses is about equal to the number of negatives.
For more information, e-mail Ann Marie Moriarty, or call her at 800-368-5242 x8350.
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