Despite Index Dip, U.S. Multifamily Developers' Outlook Still Positive

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According to the National Association of Home Builders, the latest Multifamily Production Index declined four points to 52 in the fourth quarter of 2015, yet it is still the 16th consecutive reading of 50 or above.

The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100. The index and all of its components are scaled so that a number above 50 indicates that more respondents report conditions are improving than report conditions are getting worse.

The MPI provides a composite measure of three key elements of the multifamily housing market: construction of low-rent units, market-rate rental units and "for-sale" units, or condominiums. All three components of the MPI showed declines in the fourth quarter: low-rent units and market-rate rental units both dropped five points to 50 and 59, respectively, while for-sale units dipped one point to 49.

The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perception of vacancies, remained essentially unchanged with an increase of one point to 40, with higher numbers indicating more vacancies. After peaking at 70 in the second quarter of 2009, the MVI improved consistently through 2010 and has been fairly stable since 2011.

"Although the MPI dipped this quarter, overall, multifamily developers are still positive about the market," said W. Dean Henry, CEO of Legacy Partners Residential in Foster City, Calif., and chairman of NAHB's Multifamily Leadership Board.

"Demand for multifamily housing remains strong, which is reflected in the fourth quarter MVI," said NAHB Chief Economist David Crowe. "And while demand is strong, it's natural that the MPI would move closer to the break-even point of 50 now that new multifamily housing has largely recovered from the downturn and reached a long-run sustainable rate of production."

Historically, the MPI and MVI have performed well as leading indicators of U.S. Census figures for multifamily starts and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.