(To read more on the multifamily market, click here.)
WASHINGTON, DC-Multifamily builders are becoming less optimistic about condo projects, according to the latest results of the National Association of Home Builders/Fannie Mae Multifamily Housing Market Index. It finds that more investors pull out and rising interest rates price some buyers out of the market. Conversely, however, these same factors are leading to a resurgence of interest in the apartment market, the index also found.
Supply-demand dynamics are another factor in favor of apartment development right now, the association also notes. "The rental market is very good right now," says Leonard Wood, chairman of NAHB's Multifamily Leadership Board. "Over the past three years, there have been thousands of rental units converted and sold as condos and, at the same time, few new rental apartments were being built. This leaves us with a supply-constrained market while demand is growing."
Both class B and class C apartment buildings reached their highest levels ever in the first quarter of 2006, with class B units topping the index at 71.4, up from 60.6 at the same time last year and about 30 points higher than the last quarter of 2002. Class A apartments, meanwhile, gained 1.6 points to reach 61.6 in the first quarter of 2006, compared to 60.0 at the same time last year.
The index component that gauges supply for market-rate rental apartmentsdropped to 54.6 during the first quarter of 2006, down from 57.2 at thesame time last year. The component that tracks rents reached a record high for theseries, with an index of 73.1, up from 61.7 at the same time last year and almost 20 points higher than three years ago.
Supply trends for the condo market were also captured in the index; in the firstquarter of 2006, condo supply was down to 37 from 66.9 at the same time last year. The index tracking builders' expectations for condo starts over the next six months also dropped, from 54.0 in the first quarter of 2005 to 46.0 in the first quarter of this year.
NAHB points out, however, that previous years' performance was too extreme for the long term. "The changing supply-demand balance in the condo segmentmeans that this component of the multifamily sector is slowing to a moresustainable level," NAHB chief economist David Seiders says.
Survey respondents--multifamily builders and property owners--are asked a series of questions about current market conditions as well as their expectations for the next six months. Survey answers are assigned numerical values to calculate separate indexes tracking rental demand and the supply of rental and for-sale units. The scale is from 1 to 100.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
