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Excess For-Sale Units a Concern for Rental Market
Builder confidence in current conditions in the rental apartment market dipped in this year’s second quarter, amid concerns that an excess supply in the for-sale market is creating a shadow inventory of available rentals, according to the latest results of NAHB’s Multifamily Rental Market Index (MRMI).
“Occupancy rates are still reasonably good for rental apartments, but the significant correction we are currently experiencing in the for-sale segment is having some spillover effect,” said David Seiders, NAHB’s chief economist. “It is probably good for the long-term health of the market that rental apartment developers are easing up their plans for new supply.”
The component of the index that tracks rental demand slipped to 63.8 percent for Class A (luxury) apartments, off nearly 10 points from its all-time high of 73.2, recorded for the same quarter of last year.
Moderately priced (Class B) apartments dropped to 67.7, down from 71.4 a year earlier, and lower-priced (Class C) apartments registered 66.0, down from 68.0.
The index is derived from a quarterly survey of multifamily builders and developers, in which their responses are rated on a scale of 1 to 100, with a rating of 50 generally indicating an equal number of positive and negative responses.
The component of the index gauging market supply conditions moved down slightly from a year earlier, with market rate rentals declining from 54.1 to 52.9 and lower rent units decreasing from 48.9 to 42.9.
Multifamily builders participating in the MRMI survey were optimistic about prospects for the coming six months, with readings of 60.3 for luxury apartments, 66.2 for moderately priced apartments and 59.3 for lower-priced units.
The volume of calls from prospective renters dropped to 66.1 in this year’s second quarter, down from 70.1 a year earlier, and net rents were at 64.3 for the quarter, down from a record 83.3 in the second quarter of 2006.
Despite the continuing strength in rental demand, builders appear cautious about increasing supply. The MRMI found that builder expectations for supply over the next six months are lower than at the same time last year, with the index for market rate rentals dropping from 61.2 in the second quarter of 2006 to 55.6 in the second quarter of 2007. The same supply index for lower-rent apartments dipped to 45.7, down from 54.4 at the same time a year earlier.
For more information, e-mail Ann Marie Moriarty at NAHB, or call her at 800-368-5242 x8350.
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