Confidence in Rental Apartment Market on the Rise
With demand on the rise and supply still tight, builder confidence in current conditions in the rental apartment market jumped in this year’s third quarter, and expectations for the next six months were even higher, according to the latest NAHB/Fannie Mae Multifamily Rental Market Index (MRMI), which was released on Nov. 28.
"Good economic conditions — particularly growth in the job market — are driving demand in the rental apartment market," said NAHB Chief Economist David Seiders. "But the rental market is also benefiting from a tight supply. For-sale condo units have accounted for a large share of multifamily housing starts over the last few years at the same time as a sizable number of apartment units were being converted to condos."
The component of the index tracking current demand rose in the third quarter for all classes of apartments, with moderately priced (Class B) apartments climbing the most — to 66.0, up from 58.5 for the same period a year earlier. Luxury (Class A) apartments were up 7.3 points from a year earlier, standing at 67.3. Class C apartments registered the smallest jump, gaining three points to 61.5.
A level of 50 on the 100-point index generally indicates that the number of positive responses is about the same as the number of negative responses.
Developers also see supply starting to inch up in the rental apartment market. The index tracking supply conditions for the third quarter rose from 53.7 and 54.7, up from 48.0 and 47.8, a year ago, for moderately priced and market-rate rentals, respectively.
When asked about their expectations for the rental market over the next six months, multifamily builders expressed continued optimism, with the index reaching 70.0, 75.0 and 69.2 for Class A, Class B and Class C apartments, respectively. Those expectations were based on a strong volume of calls from prospective renters; this component of the index rose to 61.5 in the third quarter, up from 57.1 for the same quarter of 2005.
In addition, the component gauging effective rents climbed 10 points from a year earlier, to 70.4, although it was down from a record 85.0 for the second quarter.
For more information, e-mail Ann Marie Moriarty at NAHB, or call her at 800-368-5242 x8350.
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