MultiFamily Market Outlook - 01/12/2007 (Plain Text Version)

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In this issue:
Multifamily for Older Residents Demands Different Features and Meets Different Needs
Starts Rise, but Continue to be Sluggish
Real Rents Hit Record High...Again
Growth in 2007 Will Remain Weak, but Will Pick Up in 2008
Multifamily Stocks Drops, S&P Improves Slightly

Starts Rise, but Continue to be Sluggish

In November, the rate of production in buildings with five or more apartments increased by about 4% from the relatively weak number posted the previous month, as the seasonally adjusted annual starts rate came in at 277,000. Although up slightly from October of 2006, this was still down 7% on a year-over-year basis. Meanwhile, new five-plus permits were issued at a seasonally adjusted annual rate of only 299,000—a further sign of weakness, and the first time the rate has dipped below 300,000 since June of 2001. Over the past five months, the five-plus starts rate has averaged just 266,0000—significantly below NAHB's estimate of a long run sustainable trend.

Source: U.S. Census Bureau; NAHB Economics Group

As a result, NAHB's housing forecast shows the rate recovering lost territory over much of the 2007-2008 forecast horizon. The main question is when the rate of production will bottom out. NAHB projects that the low point will be the first quarter of 2007, and that the five-plus starts rate will rise steadily thereafter, getting back to near 300,000 by the end of 2008. Annual production of five-plus apartments was higher than 300,000 for four consecutive years, from 2002 to 2005. There is now enough information to generate a reasonably solid estimate of 288,000 five-plus starts for 2006, although a final total won't be available from the Census Bureau for another four months.