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Condo Market Retreating From 2005’s Record Sales
Builder confidence in the condominium housing market weakened significantly in this year’s second quarter as sales continued to retreat from the record-high levels of 2005, according to NAHB’s new Multifamily Condo Market Index (MCMI), which was formerly part of the association’s Multifamily Market Index (MMI).
The MMI has been split into two indexes tracking industry assessments of for-sale and rental properties separately.
“Investors and speculators had been a big factor driving sales and production at the height of the condo boom and they have been pulling out of the market,” said NAHB Chief Economist David Seiders, “What we are currently seeing is a level of condo production that is probably more sustainable in the long run, although builders are worried that affordability has also become a factor for buyers, now that the overall economy appears to be slowing.”
In a quarterly survey of multifamily builders and property owners from across the country, the MCMI gauges industry perceptions of current condo supply conditions and expectations for the market over the next six months.
Current supply conditions fell to 32.0 on the index for the second quarter, down sharply from 61.3 for the same period a year earlier. This is only the third time that this component has gone below 50. A rating of 50 generally indicates that the number of positive responses is about the same as the number of negative responses.
The MCMI component measuring expectations for condo production over the next six month was also down, dropping to 34.
To gain insights into market demand, those participating in the survey for the index were also asked their views on the current traffic volume of prospective buyers and condo prices. The former was rated 26.8, an indication that a majority of the respondents saw declining traffic from the previous quarter, and the latter was 46.3, indicating that prices were softening to some extent.
Responding to a set of special questions, 82% of condo developers said they had noticed buyer resistance to current prices and, of those, more than one-fourth reported that they have reduced prices. The average price cut was 9%.
About three-fourths of the respondents reported that they are using non-price incentives to boost sales and limit cancellations. Two-thirds of those who said they were using incentives were including optional items at no cost, a third were absorbing financing points and two-thirds were paying closing costs. Half the developers were using agents or brokers to bolster sales, up from about 20% a year ago.
For more information, e-mail Ann Marie Moriarty, or call her at 800-368-5242 x8350.
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Attend the Multifamily Pillars of the Industry Conference, the premier industry event for the multifamily industry, on April 11-13 in New Orleans.
Visit www.nahb.org/pillars for more information.
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If you're associated with the low-income housing tax credit profession, be sure to register for the HCG Issues Forum on Wednedsay, Sept. 13 in Salt Lake City. This forum will examine ways of surviving the high cost squeeze.
For more information, visit www.nahb.org/hcgforum on the NAHB Web site.
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