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Multifamily Builders Buckle Up for a Bumpier 2007
Demand for rental apartments slowed substantially in last year’s third quarter, complicating the picture for multifamily builders this year, according to industry analyst Ron Witten, in a market update last week to NAHB’s Multifamily Leadership Board.
The slowdown in the demand for rentals, he said, coincided with slower job growth and household formations, which was compounded by a decline in mortgage interest rates.
And some of the condominiums that haven’t been sold are winding up in the rental pool. Demand for rental apartments will continue to outpace the available supply only until about the middle of this year, he predicted, which will lead to a drop in the rate of rent increases. Rents will continue to rise, but not as fast as last year.
In the meantime, the sales rate for condominiums, the beleaguered sector of the multifamily industry, has stabilized, Witten said. The annual sales pace of existing condos rose to a high of 943,000 last June, declined to a pace of 741,000 by October and then climbed to 750,000 in November.
While there is an 8% inventory of empty multifamily for-sale units, a 15-year high, the market should do a better job of absorbing them than in the 1980s, when there was also a notable oversupply, because builders have slowed the pace at which new units are coming through the pipeline.
After peaking during the second quarter of 2006, “the sector has made the first steps toward recovery with a drop in for-sale starts to a 155,000 annual rate for the third quarter,” he said.
The industry is also deriving some encouragement from a significant slowdown in the rate at which building costs are rising.
NAHB forecaster Bernie Markstein and three of the industry’s leading developers — Ron Lockwood, Lockwood Companies; Bill Donges, Lane Company; and Steve Patterson, ZOM — will provide a more in-depth forecast at the “Multifamily Economic Forecast and State of the Industry” session during the International Builders’ Show on Thursday, Feb. 8, from 1:30 to 3:00 p.m.
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