Interest-only loans haven't completely evaporated, but terms are considerably tighter. Cave said the subprime debacle has resulted in lenders most often putting a two- to three-year cap on interest-only payments. But, he said, Fannie Mae is looking to loan so its advice to originators has been "don't say no" and instead "bring us the story." Cave said the lender has made it clear that terms are flexible for "the right deal in the right location, with the right sponsorship."

Linwood Thompson, managing director for the Encino, CA-based Marcus & Millichap, explained that boring down into sales numbers shows that "the average prices per units are going up in this country." He admitted the $150,000 per unit deals are waning, but pointed out that the deal flow across the board has offset the high-end sector's slump.

For seven consecutive years, Thompson predicted cap rates would stay flat or fall. That's not the case for 2008, he said. He is forecasting a 25 basis point increase in prime deals and 50 basis points for cap rates on the margin. The increase, he said, will be a magnet for increased investment in the product type.

"The apartment industry just took two potent face-shots and we're still standing and growing," Linwood said. "It's only going to get better in the next five years. I don't think anyone's going to lose their appetite for apartments."

[IMGCAP(2)]Greg Willet, M/PF YieldStar's vice president of research and analysis, said San Antonio again has emerged as the state's shining star in the sector. "Again, San Antonio has done really well this year and is set up for a really strong performance again in 2008," he said, noting it was the fourth consecutive year of gains for the Central Texas metro. Occupancy is 95% in the 131,900-unit inventory. Average rent was $685 per month at the third-quarter close, with next year predicted to grow another 3%.

According to M/PF stats, there are 6,200 units under construction to push inventory 4.7%. Willett said the only comparable area in M/PF's 57 research markets is Raleigh, NC. Historically, development has been concentrated in northwest and north central San Antonio, but they account for only 900 units in the current pipeline. Taking over the lead is Universal City and New Braunfels, where the 1,240-unit construction will boost inventory by 18% to threaten absorption conditions in the submarket.

In a snapshot of Austin, the 156,733-unit inventory is 96.6% occupied. Its average quoted rent is $799 per month, with its 2008 prediction falling short of this year's 5% hike. Next year, Willett said rent on average will climb 3% to 4%. There are 4,000 units under construction, the bulk of which will come on line at the end of 2008. Two-thirds of the units are rising in the urban core and east and southwestern submarkets.

In Houston, the 481,780-unit inventory is 92.8% filled. The average quoted monthly rent is $729, with 2008 rent growth expected to be in the 2% to 3% range. There are 14,500 units under construction--the most in any one city in the nation. The prediction is absorption will have a tough time keeping pace with deliveries, possibly dipping occupancy to 92% or 92.5%.

Dallas' 394,943 units are 94.3% occupied; Fort Worth's 144,501 apartments are 93.7% filled. Dallas' average rent is $745 per month and Fort Worth's is $667. In 2008, effective rent growth is predicted to be 2% to 3% across the region. There are 13,200 units under construction region-wide, but ongoing teardowns are building in balance to the market.

With the economy tossed into the spotlight for Texas and the nation, the word "recession" was unavoidable. "I don't think officially we'll enter a recession, but it's going to feel like a recession. The risk levels are elevated, but on the fundamentals, there's nothing that points to a recession," Nadji reported. On a brighter note, apartments are predicted to be the only product type in 2008 that will have price increases. "Overall, we expect '08 to be another year of positive trends," he concluded.