Developers Still Bullish About U.S. Multifamily Sector in Q4

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Based on the latest National Association of Home Builders' Multifamily Production Index (MPI) released this week, U.S. developers are still bullish about the multifamily real estate sector.

The NAHB MPI held steady with a reading of 54 for the fourth quarter of 2014. This capped the third straight year of quarterly readings consistently at 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 any number over 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. The MPI component tracking low-rent units increased one point to 52, market-rate rental units fell two points to 62 and for-sale units held steady at 50.

"Demand for multifamily housing remains strong and we continue to build new units to meet this need," said W. Dean Henry, CEO of Legacy Partners Residential in Foster City, Calif., and chairman of NAHB's Multifamily Leadership Board. "Because of strong job growth, we expect to be able to keep building for the foreseeable future."

The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perception of vacancies, dropped two points to 39, with lower numbers indicating fewer vacancies.

"This quarter's MPI reading of 54 is in line with our view that the multifamily segment of the industry has largely recovered from the downturn," said NAHB Chief Economist David Crowe. "After increasing steadily over the past several years, multifamily production has now reached a healthy, sustainable level."

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.