Rental Apartment Construction in U.S. at 25-Year High, Says Freddie Mac

---

While the single-family building sector in the U.S. is slowly chugging along, the multifamily sector, especially apartment buildings for rent, continue its strong rebound according to Freddie Mac's U.S. Economic and Housing Market Outlook for September 2014.

Freddie Mac's report also validates the National Association of Home Builders' latest Multifamily Production Index (MPI), an economic indicator for the U.S. multifamily market that posted a gain of five points to a reading of 58 for the second quarter. It is the 10th straight quarter with a reading of 50 or above.

See related story: U.S. Apartment and Condominium Housing Index Posts Positive Gains in Q2

Freddie Mac vice president and chief economist Frank Nothaft said, "The apartment market has been vibrant, reflecting the desire of many Millennials to live in an urban setting and retain locational flexibility. Unfortunately, if they're looking to live in the larger cities, that's where rents are rising the fastest, especially in the West or Northeast regions of the United States, places like Los Angeles and New York City. In the South region, areas like Miami and the Washington-Baltimore metro have seen real rents exceed the U.S. average. But in the Midwest, only the Chicago metro area has outstripped the U.S. average."

Freddie Mac September 2014 Highlights Include:

• Construction of buildings with at least five apartments hit the highest monthly construction pace since the beginning of 2006.

• One big difference in the development mix today compared with 2006 is the scant construction of condominium complexes.

• The latest absorption rates for unsubsidized, unfurnished newly built apartments have been at the fastest pace in a decade: The Census Bureau reported that the latest 3-month and 6-month absorption rates had risen to 64 percent and 83 percent, respectively. Thus, demand is there to absorb the new supply.

• Over the past four quarters all the growth in net household formations has been among renters. The decline in homeownership rates has been primarily concentrated among younger households. For example, for those 35 years and younger, their homeownership rate has fallen from 43.6 percent to 35.9 percent over the past decade.

• The increased number of tenant households has pushed vacancy rates down to the lowest level since 2000, and on average, inflation-adjusted rents in the U.S. have returned to their prior peak levels of 14 years ago.